Bond buyers return to online lenders
After the rather spectacular fireworks display that Lending Club had around this time last year, it wasn’t a big surprise when the bond buyers who had grabbed the P2P market debt suddenly got cold. in the eyes and began to shy away from these market lending platforms.
But in the year after the Great Crisis – as companies like OnDeck, Prosper and Lending Club saw their balance sheets collapse – these companies rethought the way they manage risk, securitize loans and recruit. their executives.
The thinking, the Wall Street Journal notes, is a little less Silicon Valley and a little more Wall Street these days to counter investor skepticism.
And these efforts are showing the first signs of success.
As of April this year, more than $ 2 billion in loan-backed securities have been sold or are being prepared for imminent sale, according to rating companies and people familiar with the matter.
This is much needed good news for the segment, as it represents more than what was released in the second quarter of 2016, according to data tracker PeerIQ.
And that appears to be a continuation of recent activity which saw $ 3 billion of online loan-backed bonds issued in the first quarter of 2017, double the amount for the same period a year earlier.
The boost in confidence, according to investors, came as online lenders decided to tighten up and professionalize their lending and lending criteria.
“It was really important to see that there was some kind of consumer lending context… as opposed to just an algorithm,” said Joseph Astorina, head of asset-backed securities research at AllianceBernstein Holding LP.
Online loan-backed bonds are only a small part of the securitization market – in 2016, $ 7.8 billion in online loan-backed bonds were issued, compared to $ 191 billion in total issuance of asset-backed securities, according to S&P Global Ratings.
And investors – although they are again more excited about the segment – are still cautious after the rounds of burns many suffered last year when bonds fell short of expectations for their market. performance.
According to people familiar with the matter, the amount of the segment actually recovered will be the subject of another litmus test in the coming weeks, as Lending Club markets a roughly $ 400 million back-to-back bond contract. to loans it has made to less creditworthy consumers. Last week, a $ 450.5 million deal backed by 39,334 Prosper personal loans was oversubscribed, according to anonymous inside sources.