Lending Club is looking to price two more ABS deals this quarter, as the company plans to shrink its proportion of bank funding in the year ahead, executives said on a third quarter earnings call this week.
Lending Club executives speaking on a call on Tuesday indicated that the company will bring two more securitizations following the strong investor reception to its its last two offerings. The online lender debuted a multi-seller transaction backed by non-prime loans in June, followed by a prime loan securitization in September.
“After two highly successful securitizations and a stronger than anticipated investor appetite, we are expanding our contribution to securitizations in the fourth quarter,” said CFO Thomas Casey on the November 7 earnings call, adding that the securitization programme added $2.6m in net revenue last quarter, and that Lending Club is on track to deliver about $50m in securitization-related revenue for 2017.
The use of securitization as a funding tool has increased in the past 12 months, with larger players accessing ABS through self-sponsored deals. On the flipside, a willingness to take on risk in short-dated consumer ABS has led to interested buyers requesting deeper capital stacks with larger amounts of higher yielding subordinate paper. Both Marlette and SoFi have added more junior bonds to their most recent offerings.
A specialty finance investor said that securitization has been a key driver of the growth of the marketplace lending industry.
“In the past 12-18 months we have seen a really significant development in the market. Securitization is bringing efficiency and driving the cost of capital down. It also allows for sharing of data across the board and more kinds of buyers to participate in marketplace lending,” the investor said.
An ABS deal watcher added that while securitization — especially the multi-seller format seen in recent weeks — offers attractive funding and liquidity, only issuers with sufficient scale and loan origination volumes will find long-term success in the ABS market.
“Any platform that has to access the capital markets would likely want to follow in the footsteps of Lending Club, SoFi etc, but you need to be of a certain size and scale to support such a securitization programme. If you don’t have the appropriate scale or stability, it will be hard to create a successful programme,” the deal watcher said.
A Lending Club spokesperson declined to comment on size or collateral for upcoming deals.
CEO Scott Sanborn also said on the earnings call that the company will be turning its focus away from the bank market as its year-long agreement with Credigy, a National Bank of Canada subsidiary, comes to an end. The Credigy programme contributed approximately $1.3bn to Lending Club’s funding mix.
“This was a great partnership that we put in place very soon after the events of last year to bridge us while the traditional banks were in the process of returning to the platform, and while we built up our new investor capabilities,” Sanborn said, referring to May 2016’s shakeout, which resulted in a brief period of investor pullback from the online lending sector.
Outside of securitization, Lending Club is also looking at different ways to adapt to an evolving lending and regulatory landscape, including exploring the possibility of obtaining a bank or special purpose fintech charter, though the company has yet to decide on a path.