NEW YORK, July 29 (Reuters) - CommonBond, the online student lender, has hired Morgan Edwards, formerly the head of middle market lending and the head of leveraged finance for telecom, media and technology at Macquarie Capital, as its chief financial officer.
Edwards, who worked at Macquarie since 2008, will focus on capital strategy at CommonBond, as well as fundraising and growth. The company projects its loan originations will increase to more than $1 billion in 2016 from $500 million at the end of the year, and plans to pilot at least one non-student loan product within the next 12 months.
“I spent my whole life underwriting credit risk,” Edwards said in an interview, noting that the current online lending marketplace resembles the start of the leveraged finance market. “This is the future. Things will evolve and there will be offshoots of this model we haven’t foreseen yet. This is a fantastic platform and a phenomenal idea.”
CommonBond closed in June its inaugural securitization, CommonBond Student Loan Trust 2015-A, a portfolio of about $100 million of graduate student loans, according to a June 25 news release. Morgan Stanley served as the lead underwriter of the transaction.
Peer-to-peer lending and online lending marketplaces are growing, drawing support from firms including KKR & Co and Apollo Global Management. Of the approximately $843 billion of consumer loans outstanding, Goldman Sachs said about $209 billion are “at risk” to move to new players, with these new entrants making up about 15 percent of the market in the next 10 years from less than 2 percent currently. With increased regulatory oversight and the elimination of the Federal Family Education Loan (FFEL) program pushing banks out of the $1.2 trillion student loan market, there is also room for new entrants in the student loan space.
Avant, an online lender, announced the launch of Avant Institutional Marketplace, which allows institutional investors to purchase loans originated by the platform, according to an April 13 news release. It also announced a $400 million financing agreement with KKR, Victory Park Capital and Jefferies, according to the news release.
Another online lender, LendKey, announced in April that it had secured a financing commitment from Apollo’s MidCap Financial, according to an April 14 news release.
“The combination of big data analytics and new distribution channels allowed technology start-ups to disrupt traditional banks, particularly in the consumer lending space,” Goldman Sachs analysts wrote in a March 3 report. “These new entrants benefit from lower cost bases than banks, allowing them to price loans at lower interest rates.”
The rise of online marketplace lending has led the U.S. Department of the Treasury to ask for public input to allow policymakers to study the various models and products offered, according to a July 16 news release.
“By soliciting public comments on this relatively new industry, we hope to better understand the potential for online technology to expand access to safe and affordable credit for consumers and small businesses,” Antonio Weiss, counselor to the Treasury Secretary, said in the release.
Increased oversight by the Consumer Financial Protection Bureau and the elimination of the FFEL program in 2010 has changed the student lending space, with many large banks no longer originating student loans and divesting run-off portfolios, paving the way for new entrants, according to the Goldman report. The bank estimates about $200 million of profit from student loans could shift outside the banking system over the next three years.
CommonBond, which funds and refinances graduate school loans, announced two years ago that it raised more than $100 million of debt and equity from investors including The Social + Capital Partnership and Tribeca Venture Partners, according to a Sept. 4, 2013 news release.
Other investors include Vikram Pandit, the former chief executive officer of Citigroup, Thomas Glocer, the former chief executive officer of Thomson Reuters, and Tom Kalaris, the former chief executive of wealth management at Barclays, according to the news release.
CommonBond will announce Wednesday that it has appointed Charles G.T. Stonehill, a managing partner at TGG Group, to its board of directors. Stonehill previously worked at Morgan Stanley and Credit Suisse.
As the company continues to grow, it plans to provide additional products beyond student loans, with a pilot program planned for the “near future,” said Edwards, who also worked at Bear Stearns and Morgan Stanley. CommonBond declined to comment on specific products or timing.
“I see a fundamental sea change,” in the lending environment, Edwards said. “The bet I‘m making is that I believe business will get transacted differently. A whole new industry is rising and I‘m on board.” (Editing By Leela Parker Deo and Jon Methven)