Theorem Funding Trust, 2022-1, an asset-backed securities deal secured by the proceeds of future unsecured consumer loans, is preparing to issue $292.6 million to capital markets investors.
The transaction will issue three classes of notes, and use the proceeds to acquire loans, fund reserve and prefunding accounts, and pay certain fees and expenses associated with the transaction. The prefunding period ends 90 days after the expected closing date, December 4, at which point the collateral balance could be approximately $366 million, according to a presale report from Kroll Bond Rating Agency.
Theorem Securitization Sponsor SPC is sponsoring the transaction, with a range of originating banks, including LendingClub Bank, Cross River Bank and Blue Ridge Bank.
Several platform sellers have contributed the consumer loans to the collateral pool, namely LendingClub Bank, National Association, Prosper and Upgrade, Inc. Each platform will serve as servicer for the loans that it contributes to the deal, according to KBRA.
LendingClub accounts for the majority of the loans in the collateral pool, or 52.1%, while Upgrade and Prosper account for 35.7% and 12.3% of the collateral, respectively.
KBRA says it plans to assign ratings ranging from ‘A-’ to ‘BB+’ to the notes. As for credit enhancement, the transaction structure relies on overcollateralization, subordination of junior classes, a cash reserve account and excess spread as well as a curable amortization trigger.
The cash reserve account is funded at closing with an amount equal to about 0.5% of the initial pool balance. Excess spread between the weighted average collateral interest rate and the WA life adjusted note coupon amounts to about 19.2%, KBRA noted.
KBRA noted several credit strengths, including the servicing and backup servicing arrangements. Should any of the appointed servicers be unable to service the loans, Vervent, which has been in business for more than 30 years, will step in as backup servicer on the deal.
Not all was positive about the transaction, though. KBRA noted that Theorem, which was founded in 2014, has limited historical performance data. The company did not have robust loan volumes scored using the Theorem Loan Score for KBRA until recently. KBRA did review static pool gross loss data that had been aggregated into quarterly vintages, but the vintages did not cover the fill amortization or loss profile of the loans, the rating agency said.
