Prosper Marketplace Issuance Trust, (PMIT) 2019-4, is counting on a de-leverage transaction structure that will boost its credit enhancement levels over time, as it seeks to sell $138 million in securities backed by unsecured consumer loans.
The deal will use a sequential pay structure to pay investors; the class A notes will receive principal payments in full before any subordinate notes get repaid. Also, the deal’s initial overcollateralization is 9%.
PMIT is also utilizing total subordination of 23.79% for the class A notes and 11% for the class B. The deal’s credit support also includes excess spread of about 9.75%, based on a collateral weighted average interest of 14.32%.
Prosper taps a diverse array of sources to fund its business, including the whole loan channel. That mode of business, however, depends on Prosper maintaining a deep pool of investors to buy the loans. The deal’s collateral pool will also include loans owned by an affiliate of Prosper and other whole loan investors.
WebBank, a Utah chartered bank, originated the loans through an online platform operated by Prosper Funding, according to a pre-sale report from Kroll Bond Rating Agency (KBRA). Prosper funds its loans through a variety of sources, including the so-called peer-to-peer model, and $500 million in committed warehouse facilities.
Securitization is one of Prosper’s methods of diversifying its funding sources, and PMIT 2019-4 is the 14th securitization secured by loans from the platform. A portion of the securities’ proceeds will help to repay the outstanding amounts on one of Prosper’s warehouse facilities.
Most borrowers seek funding from Prosper to consolidate debt. As of the cutoff date for assembling loans into the collateral pool, the underlying loans had an average FICO score of 715, reported income of $102,094 and interest rate of 14.32%.
PMIT’s multiple methods of credit enhancement, and the stronger credit profile of Prosper’s borrowers appear to work in the deal’s favor, especially because Prosper does not generate significant revenue from interest income. It earns most of its revenue from transaction fees.
The credit support of the deal could pivot on Prosper’s transaction fee revenue. Through the three months ended June 30, 2019, lower loan origination volume pushed transaction revenue down to $33.9 million, a decrease of $4.1 million, compared with the same period a year before.
KBRA has assigned ratings of ‘A-‘ to class A; ‘BBB-‘ to class B; and ‘BB-’ to class C.
