REFILE-Marlette gets second ever online loan ABS over the line

(Refiling for wider distribution)

NEW YORK, July 20 (IFR) - Marlette Funding got its second-ever bond backed by personal loans easily over the line on Wednesday, but investors said the primary market was still wary of deals from the online lending industry.

Marlette’s US$180m ABS was only the second personal loan trade sold by an online lender since a scandal at Lending Club led to the resignation of its CEO Renaud Laplanche.

Laplanche, a French entrepreneur, left the company he founded after an internal probe found that under his watch documentation was falsified on some loans in a US$22m pool sold to Jefferies.

The events led to probes by the Department of Justice and the New York Department of Financial Services.

Marlette’s deal narrowed its pricing from guidance, but investors said global low rates had turned all types of US consumer debt-related assets with yield into a hot commodity.

And similar deals from a year ago were pricing far tighter.

Marlette priced its top US$149m of 1-year Single A (rated by Kroll) notes at 225bp over EDSF, tighter than a 235bp-250bp area guidance, two investors said.

Last July, Citigroup cleared its top class of A3 (rated by Moody’s) bonds - one notch lower - of Prosper Marketplace loans at 140bp over EDSF, according to IFR data.

Riskier Ba3 notes from Citigroup priced at 385bp over interpolated swaps, whereas Marlette’s BBs Wednesday printed at a whopping 825bp over swaps.

By another measure, the BBs were about 75bp more than a deep subprime auto ABS sold this week by lender Consumer Portfolio Services, according to IFR data.


Higher spreads on the Marlette paper come even though investors said its bond issuance program was easier to get comfortable with compared with other online platforms.

“Marlette’s business model ensures an alignment of interests among the company, the originating bank and institutional loan buyers,” Kroll Bond Ratings wrote in its presale report.

“Other marketplace lenders ... use their platform to generate origination and servicing fees but do not retain a direct economic interest in loans originated on their platforms.”

Even so, some investors in the niche of online loan ABS have put a pause on new purchases.

“We have put anything unsecured, consumer-related on hold for now,” said Jason Merrill, a structured analyst at Penn Mutual Asset Management, who was an early investor in online loan securitizations.

“There are some things the market still needs to figure out,” he told IFR.

Rising delinquencies that in some cases have marched 100bp-200bp higher than advertised by sellers of big data-backed bonds remain a chief concern, Merrill said.

But so were the prospects of tighter regulation for the online lending sector.

Compass Point Research & Trading analysts said recent comments made by the Office of the Comptroller of the Currency around marketplace lending risks could give pause to banks looking to partner up.

“We continue to believe that headline pressure, regulatory uncertainty, and supervisory scrutiny will foster a tentativeness among banks when considering partnerships with marketplace lending platforms,” they wrote last week after the OCC gave the online industry more focus in its semi-annual banking supervisory report.


The hunt for yield, meanwhile, has prompted two banks with exposure to online loans to revive postponed deals in the primary market, buyside sources said.

Non-bank Jefferies has rekindled a roughly US$140m bond deal of near-prime Lending Club loans, which was shelved for two months after Laplanche stepped down from Lending Club.

Bankers said that Goldman Sachs could also look to bring out its paused prime-quality Lending Club deal after Jefferies.

A Lending Club spokesperson declined to comment.

“Everyone’s trying to get back on track,” said one executive at a rival online lender.

“If Lending Club can get that done, it would be a nice vote of confidence in the sector.” (Reporting by Joy Wiltermuth; editing by Shankar Ramakrishnan)