Marlette Funding LLC is returning to the securitization market with a deal that bears many similarities to two somewhat larger transactions that sponsors had structured earlier in 2021.
The $319 million Marlette Funding Trust 2021-3 is split into four tranches, comprising $210 million in ‘AAA’ rated bonds with initial credit enhancement (CE) of 40.65%; a ‘AA-’ portion with CE of 22.30%; an ‘A-‘ piece providing CE of 14.85%; and a BBB- portion with CEO of 9.75%, according to a recent Kroll Bond Rating Agency (KBRA) pre-sale report. The CE consists of overcollateralization, subordination in the case of the three higher rated tranches, a reserve account funded at closing, and excess spread.
The ‘AAA’ and ‘AA-’ portions of the Marlette Funding Trust 2021-2 deal priced respectively at 35 basis points and 70 basis points, five basis points below the lower end of guidance, and the bottom two tranches priced respectively at 95 basis points and 145 basis points, at the low end of guidance.
The larger size of the current deal stems mostly from the ‘AAA’ piece, which was $210 million compared to $162 million in the last asset-backed securities (ABS) offering. Earlier transactions, also rated by KBRA, hovered around $250 million.
The more recent of the two Marlette funding deals had priced in July, below initial guidance.
Goldman Sachs was structuring lead on the earlier 2021 deals, with JP Morgan and Robert W. Baird acting as joint leads on both.
Marlette Funding operates an online marketplace-lending platform that offers personal prime and high-yield prime (HYP) installment loans under the Best Egg brand that are originated by Cross River Bank. KBRA notes that HYP loans are 24 and 36 months in length and offered to borrowers who do not qualify for prime loans, typically with a FICO score of 683 and annual income of $73,000, and Marlette has not originated such loans since Q2 2020 and none are in the current securitization.
Privately held Marlette generated net income in 2017 through 2019 but ended 2020 with a net loss, mainly due to lower origination volume and a related decrease in fees, KBRA says, adding that the company did generate net income for 2021 through August.
The rating agency says that Marlette has $250 million of multi-year warehouse facilities with staggered maturities from two large financial institutions, and the proceeds of ABS transaction will be used in part to repay a portion of outstanding debt in the company’s revolving credit facilities.
“As of August 31, 2021, approximately $102 million is drawn, giving Marlette approximately $148 million in available capacity,” KBRA says in it report.
