Social Finance has big ambitions to provide all kinds of financial products to successful young professionals, and securitization plays a key role.
The marketplace lender said Wednesday that it expects to securitize $1 billion of assets in the third quarter of 2015 alone.
That’s more than the $725 million that it completed in the first half of the year. In total, SoFi has completed just five securitizations of refinanced student loans since 2013 with a total value of just over $1.55 billion.
SoFi’s lending is growing even faster; second quarter origination (primarily of student loans) was up 65% over the previous quarter and 400% over the same period of 2014, according to Nino Fanlo, the company’s chief financial officer and chief operating officer.
As it moves into the second half, the company expects to securitize other kinds of assets, such as personal loans and mortgages, where its origination volume is also growing.
Fanlo says that SoFi currently securitizes about half of the loans it makes and sells the other half to banks, insurance companies and other institutional investors as whole loans; he expects to maintain that funding split going forward.
“There are a broad array of people we sell loans to, but the capital markets are important,” he said in a telephone interview. “We want to be as diversified as we can,” and with continually accessing the securitization market “we’ll continue to raise our ratings [and in doing so] broaden the number of people who access these deals.”
That means regular, “programmatic” issuance of larger deals that will be easier to trade in the secondary market, Fanlo says.
SoFi’s fifth securitization, which closed last week, consisted of $411 million of notes backed by $441 million of undergraduate and graduate refinanced student loans. The transaction was comprised of $147 million of floating rate A-1 notes, $235 million of fixed rate A-2 notes, and $29 million of Class B bonds. Moody’s, Standard & Poor’s and DBRS gave the highest rated senior notes Aa2/A/AA (high) respectively.
Future deals will be even larger - $500 million or more - and SoFi hopes to eventually earn triple-A ratings.
“Our goal is two-fold: to appeal to the largest universe of buyers and ensure we are the financial services destination for high achieving professionals, Fanlo said in today’s press release. “ Our mission is to assure that our select customers enjoy premium products and services.”
In the telephone interview, he explained that there are investors who would not participate in smaller deals, either because they could not put enough money to work in them or might have trouble unloading them in the future. A larger deal size is more appealing to these investors.
Higher credit ratings also broaden the appeal of a securitization. The senior tranches of SoFi’s latest transaction earned double-A ratings from two agencies, Moody’s and DBRS. Fanlo acknowledged that this was partly due to the fact that these notes benefit from higher overcollateralization, which is targeted overcollateralization level of 18.86%, compared with just 11.94% for the class A notes of SoFi’s previous deal, 2015-A.
But Fanlo that the 2015-B deal nevertheless provided cheaper funding. “I won’t disclose what the equity tranche is, but the overall funding ran very close to Libor plus 110 basis points for 93% of the capital stack. When we got started a couple of years ago, it was Libor plus 240 [on the first deal], then Libor plus 165, Libor plus 135 and 125” on subsequent deals.
“Our ultimate path is to have a triple-A,” he said.