Pagaya Structured Products is securitizing loans purchased from a network of marketplace lending platforms. These originators use proprietary credit technology that utilizes artificial intelligence and machine learning software from
Pagaya Structured Products, the transaction's sponsor and administrator, is a wholly-owned subsidiary of Pagaya US Holding Company. That entity is a wholly-owned subsidiary of Pagaya Technologies.
Pagaya AI Debt Selection Trust 2023-5 (PAID 2023-5) will issue $594 million of ABS notes in 10 classes. According to Kroll Bond Rating Agency, PAID 2023-5 is a fully prefunded transaction where there is no collateral funded at closing. The proceeds from the sale of the notes and collections will be used to fund the prefunding account and the reserve account and to pay transaction expenses.
During the three-month prefunding period, the amounts on deposit in the prefunding account will be used to purchase unsecured consumer loans from these marketplace lending platforms: LendingClub Bank; MF Consumer Loan Trust; Prosper Funding; Avant; Upgrade; SoFi Lending; Cross River Bank; and RockLoans Marketplace. LendingClub Bank, WebBank, Cross River Bank, and Blue Ridge Bank are the originating banks for the transaction.
Each platform seller or an affiliate of each platform seller will act as servicer for the loans originated through its platform. The backup servicers are Vervent and Systems & Services Technologies.
According to KBRA, this transaction is the ninth publicly rated securitization sponsored by Pagaya Structured Products.
Overall, Pagaya has completed 39 securitizations for over $16 billion since 2018, with 28 transactions collateralized by unsecured consumer assets, nine securitizations collateralized by auto loan receivables and two securitizations collateralized by a loan backed by single-family rental properties.
Internet-based lending is inherently riskier than in-person lending as there is a greater potential for falsification of information and borrower fraud, KBRA said. However, the rating agency believes each platform seller possesses adequate resources and procedures for information verification and fraud detection.
PAID 2023-5 has initial credit enhancement levels of 57.7% for the class A notes to 7.95% for the class E notes. Credit enhancement comprises overcollateralization, subordination of junior note classes, a cash reserve account, and excess spread. These enhancements are sufficient to withstand KBRA's rating stresses, the agency said.
KBRA's base case cumulative net losses expectation for PAID 2023-5 is 18.55%,
However, PAID 2023-5's class A notes have a preliminary rating of AA-, which is above the highest rating assigned in prior PAID securitizations.
In May, after reviewing outstanding PAID transactions, KBRA placed on Watch Downgrade the ratings of the class C notes of PAID 2021-1, PAID 2021-3, PAID 2021-5, PAID 2022-1 and PAID 2022-2.
KBRA has provisionally assigned AA- to the class A notes, A- to classes B and AB, BBB- to classes C and ABC, BB- to class D, and B- to classes E and DE. It didn't rate the class F and DEF notes.
