Prosper’s Recent Securitization Well Received By Investors

On May 25th, Prosper announced the closing of the first securitization they facilitated themselves. The news was not widely reported, with the exception of this excellent piece by PeerIQ, and we believe the securitization marked an important milestone for the company. In order to learn more about this deal we reached out to Usama Ashraf, Prosper’s new CFO, for his take on the transaction and highlight below why this securitization was a big deal for the company.

The Prosper Marketplace Issuance Trust, Series 2017-1 or PMIT 2017-01 initially planned on issuing $450 million of notes, but the deal was increased to $495 million due to heavy investor demand. Approximately 30 investors participated in the oversubscribed deal, and the strong investor interest was a good sign for Prosper. The securitization included solely loans purchased by the large consortium that committed to purchase up to $5 billion of Prosper loans.

When we asked Usama about how this securitization will affect Prosper going forward he had several comments. Firstly, he stressed the importance of having 30 investors on the deal with some investors buying more than one class of the securitization. As we’ve learned in the past in the online lending industry, investor diversification is very important. Additionally, the transaction was rated by both Kroll Bond Rating Agency, Inc. (KBRA) and Fitch Ratings, Inc., which haven’t rated Prosper deals for a while. The details of the ratings are outlined below courtesy of KBRA.

While Prosper was pleased with having the deal rated by two rating agencies, Usama said there is still room to improve the structure. From Prosper’s perspective, the rating agencies were conservative in their approach. Moving forward Prosper will continue to focus on demonstrating solid credit performance and stability. This may give them the ability to reduce credit enhancement requirements over time.

Lastly, it’s important to understand that this securitization is the first one facilitated by Prosper. This deal was structured by Credit Suisse Securities (USA) LLC and co-led by Jefferies LLC. In the past, Prosper’s securitizations were issued by Citi (CHAI) and Prosper did not have much involvement in the process. This new structure will hopefully lead to better outcomes going forward with this first deal being a perfect example. The PMIT 2017-1 and previous CHAI deals are compared below in a table from KBRA.

Conclusion

This is just the first of many potential securitizations coming from the Prosper Marketplace Issuance Trust program. This transaction was well received by investors and Usama noted that this will likely become a quarterly fixture for the company. The consortium plans to continue purchasing loans which will in turn be permanently financed through the securitization market once a quarter. The entire Prosper team was extremely pleased with the outcome and strong execution of PMIT 2017-1. The significant investor demand is a great sign for Prosper and the industry more broadly.

Subscribe
Notify of
4 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
tomp
tomp
Jun. 8, 2017 12:43 pm

These are the loans purchased by the consortium. What are economics for Prosper? How long is the $22M that had at 12/3/2016 going to last? Isn’t a Prosper bankruptcy a real fear for Kroll? What am I missing?

tomp
tomp
Jun. 10, 2017 5:31 am

Ryan-Can you please explain what exactly you mean when you said a positive outcome for the Company?
Isn’t it correct to say that prosper lost more money by generating these assets to sell to the group that profited from the securitization and it one step closer to bankruptcy? Or the more likely scenario that the cons which will own 30% after buying $5b and has ALL of the leverage, could probably buy the other 70% for close to nothing-effectively wiping out the entire value of Prosper. Colchis, which I think owns about 15% really has no leverage here. Credit Suisse, who led the last round at the billion dollar valuation (effectively just writing checks out to Prosper management) is already effectively wiped out.

Thanks-interested in hearing Ryan and Peters opinion.

Peter Renton
Admin
Peter Renton(@peter)
Jun. 12, 2017 11:01 pm
Reply to  tomp

Tomp, Ok, so while we don’t know the exact economics of the securitization I don’t really think this is a bad deal for the company. They made significant from the origination of these loans and will make revenue while servicing the loans. Certainly it is true that the consortium has significant leverage now over Prosper but unlike you, I think their interests are more aligned with the existing shareholders now, not less.

As for cash flow, as the Prosper CEO mentioned in the podcast from a few weeks ago, the company is almost back at breakeven again so I don’t think there is any major urgency to raise a new round of financing.

Finally, I have heard it said that the last funding round was just a cash out to the Prosper management. What I have heard is different. The management took a small percentage off the table, the vast majority of that funding round went to fund the operations of the business.

tomp
tomp
Jun. 14, 2017 10:56 am

Too many people have been victims of false returns from Prosper which caused them to reinvest money based upon false returns. And NO it is NOT the responsibility of the investor to calculate their own returns. Thats BS. It is the responsibility of Prosper not mislead, intentionally or unintentionally.

It bothers me to see investors misled and ripped off.

Prosper management took $25M from the last round-which is more than the cash they have on hand.