Marketplace lender Marlette Funding is stepping up borrower credit quality and tightening investor protections in a $266.1 million bond offering backed by prime consumer loan receivables.
Marlette, which issues online loans under the Best Egg brand name, is marketing three tranches of notes in its fourth securitization of the year in Marlette Funding Trust 2018-4.
The collateral pool includes 23,046 loans with average balances of $13,017 (or $300 million in aggregate) with a weighted average FICO of 713. That's the higher than four recent comparable Marlette ABS transactions with weighted average FICOs that ranged from 705 to 709.
The shift in borrower strength is evidenced by a sharp reduction in the average APR of 12.64% (versus 13.24% in the prior Marlette deal in July) as well as the percentage of loans given to consumers with sub-700 FICOs. Only 33.4% of loans in the portfolio are in that tier, versus nearly 50% in recent Marlette deals.
The new transaction features a $214.95 million Class A notes tranche with a preliminary AA rating from Kroll Bond Rating Agency. Kroll also assigned an A to a $22.95 million Class B tranche and a BBB- to a $28.2 million Class C tranche.
According to Kroll’s presale report, the senior notes benefit from 28.75% credit enhancement, far below the 36.5% for July’s deal.
The lower credit enhancement required to maintain the double-A rating on the senior notes was the result of both the improved credit profile as well as tighter credit-loss trigger than begins at just 2%, compared with 4% in the prior deal, according to Kroll’s presale report.
Kroll expects losses over the life of the deal to be in the range of 7.2%-9.25 versus 7.75%-9.75% for the prior deal.
All of Marlette’s Best Egg platform loans are underwritten by a third-party institution – Cross River Bank – and most are sold to third-party institutional wholesale-loan investors. The pool on Marlette’s 2018-4 deal were contributed by both Marlette, the bank and various investors, according to the presale report.
“Marlette’s business model ensures an alignment of interests among the company, the originating bank and institutional loan buyers,” the presale report states.
