Citigroup's third securitization of unsecured consumer loans originated by marketplace lender Prosper will benefit from ratings by two major credit rating agencies, which is likely to broaden investor interest.
The transaction, dubbed CHAI 2015-PM3, will be rated by Fitch Ratings and Moody's Investors Service. Moody's alone rated the previous two deals.
The transaction will offer $161.5 million of class A notes rated 'A3'/ 'A+' with a weighted average life of .78 years; $59.8 million of class B note rated 'Baa3'/ 'BBB+' with a WAL of 2.20 years and $43.3 million of class C notes rated 'Ba3'/ 'BB-' with a WAL of 3.37 years.
The loans are fully amortizing and have repayment terms of three or five years. The shorter term of the bonds, relative to other deals backed consumer loans, limits the transactions exposure to the risks of negative macroeconomic credit events and adverse regulatory and operation developments.
Total initial credit enhancement for the class A notes in 46.50%; 26.50% for the class B notes and 12% for the class C notes.
Marketplace lending has some unique risks, such as the limited performance history of these platforms and the potential for increased regulatory scrutiny. As a result Moody’s expects that cumulative losses on the loans in the pool could be 8.5%, which is significantly higher than the cumulative losses it typically expects for other consumer assets with borrowers of similar credit profiles.
Loss expectation for CHAI 2015-PM3 is also 0.5% higher than the previous securitizations backed by Prosper loans that Moody's has rated because of a slight deterioration in collateral quality. For example the deal has a larger percentage (10.17%) of loans in the lowest FICO range of 640 to 650 than previous CHAI tranasction, which had 8.11% exposure to the lowest FICO ranged loans.