Prosper's next ABS takes deeper dive into near-prime
Prosper Marketplace is marketing bonds backed by another portfolio of unsecured online consumer loans underwritten to the company’s expanded risk appetite for near-prime borrowers.
The $501.6 million Prosper Marketplace Issuance Trust (PMIT) 2017-2 deal is the follow-up to the marketplace lender’s first 2017 transaction in May, which featured the first batch of unsecured loan originations made through a new proprietary loan-decisioning platform.
The new platform includes more predictive scoring across all its credit tiers, which has resulted in a greater percentage of loans issued to lower-ranking borrowers and expanding cumulative loss projections.
Despite the increased volume to higher-risk customers, Fitch Ratings and Kroll Bond Rating Agency expect the transaction long-term to improve on the performance levels of Prosper’s more troublesome 2015- and early 2016-vintage deals.
The capital stack includes Class A notes totaling $303 million, with 45.4% credit enhancement. The bonds carry a preliminary A rating from both Fitch and KBRA, which cap the senior notes at a single-A rating due to the limited performance history of securitized, unsecured marketplace loans.
The Class B notes tranche sized at $81.13 million is rated BBB, and the $116.9 million Class C notes are rated B+ by KBRA and unrated by Fitch.
The aggregate loan balance of the collateral pool is $446.8 million across 35,947 loans – with an average balance of $12,431. The pooled loans include three-year and five-year terms with a weighted average seasoning of just one month; the 36-month loans making up 63.55% of the collateral.
The latest pool has a higher-rated average APR (17.12%) compared with Prosper's May transaction (16.53%). That is due to the expansion of borrowers with FICOs under 700 comprising 51.25% of the pool, compared with 43.34% in the first deal of the year.
The new transaction has higher expected cumulative losses than the first deal of the year, with KBRA projecting between 15-17% and Fitch assigning a gross default assumption of 14.25% for three-year loans and 21.25% of five-year loans – up from 13.75% and 20.75%, respectively, from 2017-1.
Prosper, which has undergone a transition in senior management since the fourth quarter, has originated $586 million in loans during the first quarter of 2017. That is down from $978 million in the year-earlier period.