Lending Club Aims Low in First Rated Securitization
Nearly seven months after the exit of former CEO Raymond LaPlanche, the first rated securitization of Lending Club loans has come to market.
The transaction is sponsored by Jefferies, which is one of several institutional investors that purchases loans from the marketplace lender. According to Kroll Bond Rating Agency, which is rating the deal, there have been two other broadly distributed securitizations of Lending Club loans this year (reportedly also by Jefferies); both of the prior deals were unrated.
The deal did not achieve as high of a credit rating as a recent transaction from another online lender, Avant, but that may have been by design. By some measure, the collateral for the Lending Club deal is not as risky, yet the transaction does not offer as much investor protection.
Lending Club Issuance Trust, Series 2016-NP2 is issuing two classes of notes totaling $101.751 million. The $85.34 million Class A senior tranche is rated BBB by Kroll, the second-lowest investment grade rating; the $16.41 million subordinate Class B tranche is rated BB+.
Credit enhancement is comprised of overcollateralization (in other words, the value of the collateral exceeds the balance of the notes being issued) subordination of the junior note class, a cash reserve account and excess spread (or the different between in the interest received on the collateral and the interest paid on the notes. The total initial hard credit enhancement is 35.5% for the Class A notes and 23% for the Class B notes, according to Kroll.
By comparison, Avant garnered an A for the senior tranche of its $255 million transaction, completed in August, is rated A- by Kroll, four notches higher. Likewise, the subordinate tranche of Avant’s deal is rated BBB-, one notch higher than the comparable tranche of Lending Club 2016-NP2.
The difference may be explained by the additional credit enhancement on Avant’s senior tranche, which totals 56.85%. It’s worth noting that Avant had to increase this, from 49.95% in its previous deal. (This additional enhancement may have been necessary to woo investors back after the lender shed staff and shelved expansion plans in the spring. However, it did not earn Avant a higher credit rating however. The senior tranche of Avant’s prior deal carried the same A- from Kroll.)
If anything, Kroll appears to consider the collateral for the Lending Club safer than the collateral for Avant’s deal.
Kroll’s expectations for cumulative net losses, in its base case scenario, are in the range of 18.75% - 20.75%; that’s slightly less than its expectations for cumulative net losses on collateral backing Avant’s last deal, which ranged from 20.20% - 22.20%.
The weighted average FICOs for the two deals are similar, 640 for Lending Club vs 655 for Avant. However, FICOs of the borrowers in the Lending Club deal have a narrower band of 600-659, whereas FICOs for borrowers in Avant’s deal range as low as 580 and as high as 720, according to presale reports.