Eaglewood Capital Management has completed the first securitization of peer-to-peer consumer loans.
In a press release, the firm said its $53 million deal was issued on Sept. 27 without a credit rating and is backed by unsecured consumer loans originated through the LendingClub Corporation. Waterford Capital is lead arranger on the deal.
Peer-to-Peer lending platforms were initially established to be the eBay of consumer credit. They are the intermediaries between people needing to borrow money and people who have money to invest and to lend.
“Their origination activities are completely automated and online, so they have a lower cost of origination than your typical specialty finance lender or bank,” said Jonathan Barlow, CFA at Eaglewood Capital. “The lower cost of origination means better yields for investors and a better interest rate for the borrower.”
Barlow said that the Eaglewood deal achieved good pricing but said that for competitive reason, he could not disclose that information.
Borrowers in the transaction had a weighted average FICO score of over 700 and a weighted average income of over $90,000. All of the securitized loans have terms of 36 months.
“These are primarily high credit quality, relatively high income borrowers who for one reason or another incurred credit card debt and are refinancing that debt via a lower-interest loan, lower than what they pay on their credit card,” said Barlow.
LendingClub, the largest peer-to-peer lender in the US, said its on track to originate $2 billion in loans in 2013. It expects to originate $4 billion in 2014.
Barlow said this rapid growth is possible because LendingClub isn't subject to the same constraints as speciality finance companies and banks. These, more traditional lenders, can only grow “via headcount branches and infrastructure but under the peer to peer lending platform everything is done on line – its highly automated,” said Barlow.
It’s a highly scalable platform that could pave the way for future, rated transactions, he aaid.
Eaglewood has had preliminary discussions with credit rating agencies but in this particular transaction “we felt that the cost of getting a rating was greater than the interest savings that we would achieve with the ratings. As we gain scale it will be easier to justify those costs.”