June 16, 2016 / 7:55 PM / in 2 years

SoFi markets new deal hard in face of industry woes

NEW YORK, June 16 (IFR) - Social Finance is looking to sell its debut rated bond backed by personal loans, the first such deal since troubles at rival Lending Club cast a shadow on the online loans sector.

SoFi has undertaken an aggressive campaign to distance itself from Lending Club, widely seen as the leader of the nascent online lending industry, in marketing the deal.

The company held at least a dozen meetings with investors, sometimes without bringing along the two banks - Citigroup and Deutsche Bank - that are bookrunners on the deal.

Investors told IFR that the San Francisco-based company has also been contacting portfolio managers directly via instant messaging as it seeks feedback from the buyside.

They said the company has been highlighting its focus on high-earning professionals and its practice of keeping a sliver of each loan on its own books to keep “skin in the game”.

SoFi’s eight-person capital markets team, which is headed by Barbara Lambotte and Paul Fielding, has been part of the direct engagement, they said.

The novel approach has raised some eyebrows in the market, not least because of the thicket of complicated laws that govern the marketing of securities.

“There are significant rules,” one lawyer who works in the securities industry told IFR. “It’s really dangerous territory.”


A senior SoFi executive familiar with the matter confirmed that the conversations took place, but insisted the company had no plans to cut banks out of its marketing process.

SoFi simply wants to have regular contact with investors, the executive said.

SoFi’s in-house broker-dealer, SoFi Securities, has been active in selling residual slices of each new securitization to niche investors.

But while other ABS issuers such as GM Financial and GE Capital also cultivate dialogue with bond buyers through their investor relations departments, bankers said, SoFi’s approach was more intense.

Even so, SoFi appeared to be gaining better traction than other personal loan ABS trades sold this year when its deal was announced on Thursday.

Whispers on the single tranche, a 2.3-year US$379.8m class of Single A rated notes, are in the area of swaps plus 250bp-275bp.

It is expected to price next week, three sources said.

Citigroup in March was forced to pay investors 400bp over EDSF on its Single A bond of securitized Prosper Marketplace personal loans, after receiving pushback at 300bp.

That issuance program came to an abrupt halt in April.

SoFi’s trade is backed by unsecured installment loans of up to seven years to borrowers with high average US$140,000 annual incomes and 763 credit scores, according to a Kroll Bond Rating Agency presale report.

The company sold its first securitization of personal loans last year, but that deal was unrated.

The SoFi offering comes roughly a month after the ouster of Lending Club founder Renaud Laplanche and the disclosure that some loans sold by the company had been tampered with under his watch.

The beleaguered marketplace lending sector is struggling to win back trust from investors concerned about slipshod underwriting and rising default risk.

Prosper cut more than a quarter of its staff in May, and the platform’s loan volumes fell more than 10% in the first quarter of 2016 from the previous quarter. (Reporting by Joy Wiltermuth; Editing by Marc Carnegie and Natalie Harrison)

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