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Funding Circle portfolio priced tight in second SBOLT deal

Small Business

The second European securitization backed by Funding Circle loans was priced on Thursday, with spreads showing the dramatic drop in financing costs for European marketplace loan ABS since the market emerged in 2016.

P2P Global Investments, a UK quoted investment trust managed by Pollen Street Capital, sold the senior £128m ‘A’ class of SBOLT 2018-1 at 75bp over one month Libor — 145bp tighter than the same tranche in the last securitization of Funding Circle assets, which was brought by KLS Diversified Asset Management in May 2016.

That deal, SBOLT 2016-1, was the first ever European marketplace loan ABS and several tranches were upgraded by Moody’s in March last year on the back of rapid repayments.

Like the first SBOLT deal, the new transaction benefited from supranational support. German development bank KfW bought a piece of the senior tranche, which benefited from a guarantee from the European Investment Fund (EIF). KfW bought £50m of an £87.8m ‘A’ class in SBOLT 2016-1.

“We are pleased to be working again with Funding Circle to boost access to finance for businesses,” said George Passaris, head of securitization at EIF.

The senior notes, rated Aa3/A (high)/AA- by Moody’s, DBRS and Kroll, were priced in line with initial thoughts and guidance of 75bp area. At initial price thoughts, the tranche was 1.5 times subscribed.

The ‘B’, ‘C’ and ‘D’ classes were priced at 125bp, 200bp and 300bp over Libor respectively with an unrated class ‘E’ retained piece priced at 450bp over Libor.

Deutsche Bank was the sole arranger and lead manager on the deal. The deal was also the first European securitization deal to be rated by Kroll since the firm established a presence in Dublin and London in 2016.  

The deal securitizes a £207m portfolio of 4,007 loans to 3,928 UK small and medium sized enterprises, originated on the Funding Circle online marketplace. The loans are 8.6 months seasoned and the weighted average interest rate is 10%. The pool is granular with top 10 borrowers only accounting for 1.85% of the total pool balance.

In the final quarter of 2017, Funding Circle net lending was £155m, while major high street banks’ figure was negative, according to a release, which also mentioned that investors have earned an average 6.4% per year after fees and bad debts, since 2010.

The platform has lent £4.5bn to more than 45,000 businesses in the UK, US, Germany and Netherlands.

The seller, P2P Global Investments, will retain a 5% interest in each tranche to comply with risk retention rules.