Pagaya AI Debt Trust, 2022-5, is preparing to issue $387.5 million in asset-backed securities, to fund a portfolio of unsecured consumer loans, plus a reserve account and other transaction expenses.
The sponsor, Pagaya Structured Products, had shifted to acquiring loans underwritten to tighter underwriting standards—especially among higher-risk borrower segments—in the fall of 2021, according to a pre-sale report from Kroll Bond Rating Agency. In other changes, the rating agency increased its recovery assumption to 6.25% for the transaction, called PAID 2022-5, compared with 5.00% in the PAID 2022-3 deal.
PAID 2022-5 has an initial overcollateralization level of 22.50%, and a target O/C of 36.25%, according to KBRA.
Pagaya AI will purchase the loans for the trust from a range of marketplace loan platforms, including LendingClub Bank, MF Consumer Loan Trust, and Prosper Funding, SoFi Lending, and Upgrade, according to KBRA.
KBRA notes that PAID, 2022-5 will repay noteholders following a sequential pay structure, where those who hold the class A notes will receive principal payments until they are repaid in full, and after that the class B notes will receive principal payments until they are paid in full, the rating agency said.
Otherwise, PAID 2022-5 benefits from several forms of credit enhancement, including the overcollateralization, subordination of junior note classes, a cash reserve account and excess spread, KBRA said.
PAID 2022-5's reserve account will equal $18.65 million at closing, or about 3.73% of the prefunded pool balance. Gross excess spread, before losses, is about 10.66%.
In another structural feature, the classes A and B notes can be exchanged for the class AB notes, and vice versa, KBRA said.
In addition to unsecured consumer loans Pagaya Technologies also finances lending in the areas of auto loans and single family rental properties, using machine learning, big data analytics, and AI-driven credit and analysis technology. Since 2018, Pagaya has completed 30 securitizations for more than $12 billion, although the vast majority of deals, 21, have been collateralized by unsecured consumer loans.
KBRA expects to assign ratings of 'A-' to the $323.2 million, class A notes; and 'BBB-' to the $64.2 million, class B notes, KBRA said. All of the notes have a legal final maturity date of June 17, 2030.
