Deutsche Bank has been mandated as sole arranger and lead manager to market the debut European market place securitization of UK SME assets originated on the Funding Circle online marketplace.
The deal, to be called SBOLT 2016-1, comes in the wake of a period of volatility in US marketplace lending (MPL) ABS after the placing of three junior tranches of Citi-originated CHAI (Citi Held for Asset Insurance) deals on watch for downgrade in February. It will be an interesting test of investor appetite for these assets in securitized form in Europe.
Funding Circle is due to meet investors in London for a series of one-on-one meetings on Monday, Tuesday and Wednesday (April 18-20) with a view to a potential sterling-denominated Reg S deal. Deutsche Bank is believed to have received a sizeable reverse enquiry into the senior tranche. Funding Circle declined to comment on the proposed transaction.
The volatility of several US MPL ABS deals has given rise to questions over any parallels that might exist between this new asset class and sub-prime mortgage securitization before the financial crisis.
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Sachin Patel, |
Sachin Patel, global co-head, capital markets at Funding Circle, emphasizes the extent to which the industry has changed.
"In the mortgage crisis, underwriting was outsourced and no one validated the application data,” he told Euromoney earlier this month. “We undertake a lot of due diligence and the banks check what we are doing. All loan performance is published online on our website – with the originate-to-distribute model, no one knew what was in the loans.
"We publish details of every loan on our website - there is real reporting. You can very quickly see what is going on. Our skin in the game is that we are totally transparent."
Patel believes small business loans originated online are particularly suited to securitization pools.
“These are very vanilla small balance SME loans and repayment levels are very stable," he said. "They are far more vanilla than a portfolio of bank loans."
In the US, total MPL ABS issuance now stands at $8.6 billion from 47 deals [29 of consumer loans, 11 of student loans and seven of small business loans] according to research firm PeerIQ. The pace of issuance slowed in the first quarter of this year and the headlines around CHAI have seen spreads in that programme increase by 100 basis points from its first issuance in 2015.
Funding Circle is the leading UK marketplace lender and has issued more than $2 billion small business loans to date.
For an in-depth investigation into the development of marketplace lending and how securitization will fund it, see the May issue of Euromoney magazine.
