SoFi Lending Corp.’s first foray into the 2017 securitization market bypasses its signature student-loan refinance program to instead pool together a super-prime consumer loans portfolio supporting $477.1 million in asset-backed bonds.
SoFi Consumer Loan Program 2017-1 is secured by a pool of $550 million in loans, and has a capital structure consisting of a $426.4 million series of Class A notes and $50.7 million in Class B notes.
The Class A notes issuance has a preliminary ‘A’ structured finance rating from both Kroll Bond Rating Agency and DBRS. The ‘A’ rating from Kroll represents a step back from its ‘A+’ rating achieved in its previous transaction in November when it issued a $213.6 million pool of loans under SoFi 2016-5. Kroll cited the lower credit enhancement levels provided in the latest transaction.
The triple-B rated Class B notes are sized at $50.7 million.
The transaction is the seventh asset-backed security deal sponsored by SoFi in the consumer loan space. The six-year-old company has been most active is offering student-loan refinancing products to borrowers with advanced graduate degrees in business or medicine, or who are enrolled in programs for high-paying professions at top-tier undergrad institutions.
The company, which also issues mortgages to that target group, began its personal consumer loan business in 2014 and has built up a portfolio of $3.5 billion in loans to 95,000 different borrowers (as of Nov. 30, 2016).
The borrowers in the 2017-1 consumer loan pool are slightly older that the student-loan customer (30 to 45, compared to the student borrowers between 25 and 40). They also have slightly lower incomes at $143,365 for the latest SCLP 2017-1 transaction. That figure was $184,038 for Social Finance’s most recent student-loan refinancing pool (SOFI 2016-E).
Borrowers had a weighted average FICO of 730, and monthly free cash flow of $5,175 – placing them in the top 15% of average household income on a national basis. The loans are both fixed and variable rate, with credit scores ranging from 680 to 850. Weighted average credit score is 732 and net interest rate is 9.59%. Half of the loans are eight-year loans. (By comparison, most online marketplace lenders generally have loan terms ranging between 44 and 48 months, according to Kroll).
Ratings agency DBRS has applied a 10.11% weighted average default assumption on the transaction, and 9.6% on net loss assumptions. Kroll is a bit more optimistic with a cumulative net loss range between 6.9%-8.9%.
Higher loss expectations are assigned to the seven-year loans (11.15% to 13%) vs. the three-year loans (4.1%) in the pool.
Credit enhancement on the A notes is 22.97%, consisting of 13.26% overcollateralization (the lowest among SoFi’s last 3 consumer loan pools), 9.22% subordination of the Class B notes and a fully funded reserve account at 0.5% of the initial pool balance. The OC will build to a target of 22% of current collateral balance, subject to a floor 1% of original collateral balance.
That is 2.23% lower than the initial CE of 2016-5, resulting in the lower preliminary rating from Kroll. DBRS’s ‘A’ rating maintains the rating level the agency has previously assigned to SoFi consumer loan pools.
SoFi expects the new transaction to close by Jan. 26.