Marketplace lenders may be able to teach banks a thing or two about speeding up loan origination, but when it comes to securitization, they could use a few pointers themselves.
That was the message at a Fintech panel at IMN’s annual CLO conference Tuesday.
As nonbanks marketplace lenders are dependent on either whole loan sales or securitization to fund growth. But the corporate loans that they make are far too small to be acquired by collateralized loan obligations. Marketplace lenders either sponsor securitizations of their own loans or sell them in bulk to institutional investors, who them securitize them.
“Marketplace [securitization] is in some cases like old middle market CLOs,” said Joseph Beach, a partner at law firm Cadwalader, Wickersham & Taft, said, referring to deals backed by loans to smaller companies. He said there are two “big steps,” or structural changes, that would make securitizations of marketplace loans more closely resemble CLOs.
The first is to introduce revolving, rather than static, pools of loans. “There’s no reason why, right now, a marketplace term ABS could not put revolving pool,” Beach said. “You can call that a CLO structure.”
A more important distinction between securitizations of marketplace loans and CLOs, according to Beach, is tht CLOs are backed by loans from a diversified pool of originators. “To me that’s more interesting,” he said. “Will any aggregator go to multiple [marketplace] originators?”
Thomas Meister, senior counsel for capital and financial markets at Funding Circle, is keen to the idea. “We haven’t seen flock of institutional investors come into the space,” he said at the same panel. “Given the choppiness in the market, diversity is critical. We see CLO mangers as part of that.”