Kroll affirms ratings on dozens of fintech ABS notes

Marketplace lenders have seen improved performance of securitizations in the past few months, and have avoided downgrade actions on their notes – so far – according to a new report from Kroll Bond Rating Agency.

In late April, Kroll placed under review 169 publicly and privately rated fintech bonds from 18 issuers it tracks, over concerns that the coronavirus pandemic would have on consumer payment patterns on unsecured, personal loans – debts which presumably would be a lower priority for growing numbers of borrowers who had lost jobs. The review covered approximately half the note tranches it rates in the sector.

Kroll reported that it affirmed the ratings of 98 of those securities tranches backed by prime and non-prime loans originated through lenders such as Prosper, LendingClub, Avant, Opportun, LendingPoint and LoanDepot, “generally due to increased credit support and/or performant that is better than what was expected” in April, the surveillance report noted.

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Of those being affirmed, 62 remain on watch status for downgrade (or "developing"), and remain part of a watch list of 123 total securities tracked by Kroll as candidates for potential downgrades.
The marketplace industry has come under particular scrutiny by ratings agencies since the onset of COVID-19 as the sector that has developed in recent years had yet to undergo macroeconomic turmoil. While many have tightened underwriting, several others have also ramped up relief programs to tide borrowers over through the crisis.

Due mainly to government stimulus programs to alleviate household and small-business stress during the spring and early summer, 30-plus day delinquencies were actually at a lower median average of 2.8% than at the start of the pandemic outbreak in the U.S., while enrollment levels in borrower relief programs were a median of 5%.

Kroll cautions that “uncertainties remain” because of the current expiration of the $600 weekly federal unemployment benefit at the end of July, and how ongoing efforts to contain the spread of COVID-19 will impact future unemployment trends.

But through mid-July, “[c]redit enhancement levels have increased for most transactions as senior securities continued to deleverage,” the report stated.

In addition, no outstanding marketplace ABS transaction that had a revolving feature permitting the issuer to add new assets to the pool had breached any performance triggers.