Online lender Social Finance, or SoFi, found a ready market for its inaugural rated offering of bonds backed by unsecured consumer loans.
The $500 million transaction, which was led by Citigroup, received bids for nearly three times the amount on offer from 28 investors, the company announced Tuesday.
The bonds, which are rated single-A by DBRS, priced inside of the indicated range.
The deal is one of the first offering of securities backed by online loans since LendingClub Corp. said in May that its founder and chief executive officer was resigning and that the company had found problems with its controls.
SoFi got its start refinancing student loans to graduate students and recent graduates with good credit, advanced degrees and gainful employment. It has recently expanded to offer consumer loans and mortgages to the same customer base. The company’s previous consumer loan securitization was unrated, which limited the investor base; many fund managers cannot purchase unrated bonds.
"As the second we've brought to market in the last two months, this deal signals that online lenders like SoFi are well-received by institutional investors,” Nino Fanlo, the company’s chief financial officer said.
“This is also the second asset class that we've successfully brought to institutional market, and we expect to bring a third in the coming months – each is a testament to the quality of our customers and our differentiated approach."
The new deal, SCLP 2016-1, is backed by loans with terms of 36, 60 and 84 months, according to KBRA.
The weighted average original loan term of the loans is higher than that of the marketplace lending peers, which KBRA says makes the transaction exposed more to credit risk borne by economic volatility. Approximately 56.3% of the loans have 84-month terms, and the weighted average term is approximately 70 months. By comparison, its peers who lend to prime borrowers generally make loans with weighted average term ranging from 44 to 48 months.
However, SoFi generally makes longer loans to more creditworthy obligors than its peers and the longer term allows for manageable payment sizes, according to KBRA. The weighted average credit score and net interest rate of borrowers in this deal are 736 and 8.39% respectively.
The loan pool is also geographically diverse, with the top three states based on current balance (CA, TX & NY) representing about 30% of the portfolio. The loans pool is seasoned by five months and no loans are more than 30 days delinquent.
SoFi’s underwriting model is based on the borrower’s free cash flow, ability to repay, credit history, and work experience and requires 100% income verification on all borrowers and products. The original principal balances ranging in size from $5,000 to $100,000.
The company has separate funding facilities for student loans and for mortgages, which it also started originating last year. To date, the company has not brought a rated mortgage securitization to market.
As of March 31, 2016, SoFi had originated approximately $2.2 billion in personal loans to roughly 57,000 different prime quality borrowers.