For Marketplace Lending Securitizations, A Bumpy Road But Strong Investor Sentiment

A new report by published by PeerIQ contains 10 recent examples of trigger breaches in marketplace lending ABS transactions.

“Since the inception of MPL ABS market, we have observed 10% of deals breaching triggers historically,” the report says. It goes on to say that these events are typically manifestations of “unexpected credit performance, poor credit modeling, or unguarded structuring practice.”

“If an early amortization trigger is violated, excess spreads are diverted from equity investors to senior noteholders with the goal of de-risking the senior noteholders as quickly as possible.”

CAN Capital is the lone small business lender on the above list and we reported on their trigger breach back in December. Little public information has come out about the company since they stopped lending late last year.

The most recent trigger breach on the list was SoFi, a company known for courting super prime borrowers.

“Trigger breaching events do not necessarily imply credit deterioration of the collateral pool,” the PeerIQ report states. In another section of the report that addresses increased losses for non-bank lenders, it says that two of the three primary drivers of that are borrowers stacking loans and lenders shifting to riskier borrowers.

Nonetheless, Q1 was a record quarter for marketplace lending securitizations with seven deals priced for $3 billion. That’s a 100% increase over Q12016. “The industry continues to experience strong investor sentiment as evidenced by growing deal size and improved deal execution,” they say.

“We expect higher volatility from rising rates, regulatory uncertainty, and an exit from a period of unusually benign credit conditions. Platforms that can sustain low-cost stable capital access, build investor confidence via 3rd party tools, and embrace strong risk management frameworks will grow and acquire market share.”

Sean Murray is the President and Chief Editor of deBanked and the founder of the Broker Fair Conference. Connect with me on LinkedIn or follow me on twitter. You can view all future deBanked events here.