Theorem Funding Trust returns with a $421.7 million asset-backed securities (ABS) deal, a deal where the trust practically slashed the portion of unsecured personal loans with lower credit scores.
While loans with Theorem scores of 60 through 90 do represent the majority of the pool, 56%, the portion is drastically smaller than it was in the THRM 2022-1 deal, 82%, according to an analysis from Kroll Bond Rating Agency. Theorem underwrites loans using artificial intelligence and other data inputs to produce scores ranging from 50 to 100, where higher scores indicate higher credit quality loans.
Theorem acquired the personal loans from a range of marketplace lending platforms, including Upstart Network, Marlette Funding, LendingClub Bank, National Association, Upgrade and Prosper Funding.
As of the deal’s cutoff date, the proportion of its collateral was 37% of Upstart loans, and then 23.2%, 21.3%, 14.6%, and 7.1% of Marlette, LendingClub, Upgrade, and Prosper loans, respectively. Each of the platforms that sell the loans to Theorem will service the loans originated on their platform, according to the rating agency.
In another feature of the 56,993-loan collateral, so-called custom loans made up about 45% of the THRM 2022-2’s collateral balance. Since Theorem began purchasing custom loans from Prosper in January 2019, custom loans have comprised 40% of Theorem’s monthly purchasing volume.
The trust will issue notes from two classes, the $373.5 million, class A notes, rated ‘A-’; and the $48.2 million, class B notes, rated ‘BBB’.
Theorem Funding Trust, 2022-2, has notes that benefit from overcollateralization—30% initially, which will build to a target of 34.0% of the current pool balance, subject to a floor of 2.0% of the initial pool balance. The deal also has subordination, a cash reserve account equaling 0.50% of the initial pool balance, and excess spread of about 11.23%. The deal also benefits from a curable amortization trigger.
Using subordination, THRM 2022-2, the class A notes will receive principal payments prior to all subordinate notes, and once they are repaid in full the class B notes will receive principal payments until they are repaid.
On average, the loans have a balance of $10,570, and on a weighted average (WA) basis the loans have a coupon of 18.9%; a FICO score of 686; an original term of 53 and a remaining term of 48 months.
The notes are scheduled to make their final payments on Dec. 15, 2028.
