Lend Academy Network Forum

Lending Club Discussion => Investors - LC => Topic started by: Fred93 on April 28, 2016, 05:04:42 AM

Title: LC is going to do their own securitizations
Post by: Fred93 on April 28, 2016, 05:04:42 AM
LC is going to issue some bonds which are securitizations of loans.

Relatively poor article in Wall St Journal.  Copy & paste journalism takes sentences and bits if issues from prior article and pastes em in.  Nothing official.  This is a rumor piece.  Probably informed rumor, but no official info available yet.

http://www.wsj.com/articles/lendingclub-looks-at-new-deal-to-crack-tough-market-1461663002

Article says nonsensical stuff such as
Quote
Recent securitization transactions that have been sold to investors were largely done at much higher yields, reflecting concerns about the creditworthiness of borrowers and the economy. Buyers of a March bond offering based on Prosper Marketplace Inc. loans demanded yields as much as five percentage points higher than a similar deal late in 2015.

No.  And by the way "much higher" is not meaningful English unless you say much higher than what.  LC hasn't said what the interest rates on these new bonds are going to be, so you can't say something else was higher than these bonds that the article is supposedly talking about.  You can't just sell a securitization at a much higher interest rate than the stuff inside it, 'cause where would the money come from to pay that interest?  They are referencing the recent articles about the securitizations of Prosper loans without being specific, who had their risky tranches sell at a higher rate than they sold the previous time.  That has little meaning to you or me or LC, so is particularly misleading in this article.  We don't even know whether LC is going to divide this up into tranches based on performance as so many of the securitizations do.

It makes sense for LC to take this step.  Its just a repackaging.  They package their product several different ways now, to appeal to different kinds of investors.  This is just another packaging.  They create bonds packaged up in little bitty pieces (notes) that they sell to retail investors.  They already have passed the regulatory scrutiny necessary to issue bonds.  Why not package up some big bonds (securitizations) to sell to some big guys who are used to buying a product in that shape?  If LC doesn't take the lead, then other folks are going to do securitizations, and LC loses control.  (Has already started.)  If those 3rd parties do stupid stuff, then you'll end up with bad PR, as you'll be mentioned in every article about the train wreck.

Will be interesting to learn the details of how these things are going to be packaged, but none of that info is available at this time.  How the things will be split into tranches.  To whom they will be available.   What data will be available, and to whom.  At this point there is no SEC filing.  No press release.  Just rumor that LC will be "discussing" this with some big investors this week.

Title: Re: LC is going to do their own securitizations
Post by: Shylock on April 28, 2016, 12:06:53 PM
Just to confirm - this means investors will be able to buy say, a $1000 bond that has tiny pieces of a bunch of notes? Instead of the same investor say, buying 40 $25 notes?

Seems like this should reduce volatility - at the expense of being able to choose your loans.

I think I'd rather stick with using an external credit model to pick hundreds of loans among thousands, with small, $25-50 notes.
Title: Re: LC is going to do their own securitizations
Post by: dompazz on April 28, 2016, 04:35:00 PM
Just to confirm - this means investors will be able to buy say, a $1000 bond that has tiny pieces of a bunch of notes? Instead of the same investor say, buying 40 $25 notes?


Yes, though you are going to have to be an institutional investor looking to invest 7 figures in these bonds.  You might be able to find some of them on the secondary market.  Most will be held by large allocators through to maturity.
Title: Re: LC is going to do their own securitizations
Post by: rawraw on April 28, 2016, 05:39:33 PM
LC has always been opposed to this.  If it occurs, I'm curious what changed.  Wonder if the economics are better
Title: Re: LC is going to do their own securitizations
Post by: Fred93 on April 29, 2016, 02:19:01 AM
There was a session at Lendit on securitization.  Its not intended for this audience, so the discussion may seem obscure to some, but you can get a feel for the sort of issues that people doing securitizations are thinking about.

http://www.lendit.com/usa/2016/videos/state-securitization-market
Current State of the Securitization Market

Current State of the Securitization Market with Chris Phillips, SoFi, Steven Lee, Eaglewood Americas LLC, Stephanie Yeh, Credit Suisse and Ege Tanor, Insikt. Moderated by Robert Villani, Clifford Chance.

I found Stephanie Yeh's comments most helpful.
Title: Re: LC is going to do their own securitizations
Post by: Fred on April 29, 2016, 02:28:12 AM
Realistically, this means LC will carve a smaller piece of the pie to retail investors.
Title: Re: LC is going to do their own securitizations
Post by: hzhou9 on April 29, 2016, 02:34:29 AM
I noticed that loan supplies are huge since Monday. Maybe this is related to the securitization thing?
Title: Re: LC is going to do their own securitizations
Post by: Fred on April 29, 2016, 03:10:14 AM
Perhaps this the "new product" that we have been discussing here  http://www.lendacademy.com/forum/index.php?topic=3762.0 ?
Title: Re: LC is going to do their own securitizations
Post by: nonattender on April 30, 2016, 03:30:12 AM
Perhaps this the "new product" that we have been discussing here  http://www.lendacademy.com/forum/index.php?topic=3762.0 ?

An ETF?  I'd like to see an LC ETF - and, judging by the way Prosper kept talking at LendIt, they'd like to see one, too, so, that tells me
that LC is probably close to finishing one and Prosper found out and is close to starting to copy it - but I think the product is a "loan"...
Title: Re: LC is going to do their own securitizations
Post by: rawraw on April 30, 2016, 06:43:00 AM
Perhaps this the "new product" that we have been discussing here  http://www.lendacademy.com/forum/index.php?topic=3762.0 ?
I think you may be onto something here.
Title: Re: LC is going to do their own securitizations
Post by: Fred on April 30, 2016, 12:43:56 PM
Coming this May.

http://www.bloomberg.com/news/articles/2016-04-29/goldman-jefferies-said-to-start-marketing-lendingclub-abs-deals

Quote
Jefferies Group is planning to bundle at least $150 million of consumer loans from LendingClub Corp. into bonds and sell them to investors in May, in the first of a series of such deals, people with knowledge of the matter said.

Goldman Sachs Group Inc. is planning to also buy loans from LendingClub and package them into bonds, one of the people said. LendingClub, which makes loans to consumers over the Internet, aims for deals like these to help cut funding costs.

The Jefferies transaction in May will be backed by riskier consumer loans with an average interest rate of 28.5 percent, one of the people said, while Goldman Sachs’s will be tied to debt at the lower end of the "prime" scale.
Title: Re: LC is going to do their own securitizations
Post by: RaymondG on April 30, 2016, 01:57:57 PM
Quote
Jefferies Group is planning to bundle at least $150 million of consumer loans from LendingClub Corp. into bonds and sell them to investors in May,The Jefferies transaction in May will be backed by riskier consumer loans with an average interest rate of 28.5 percent, one of the people said, while Goldman Sachs’s will be tied to debt at the lower end of the "prime" scale.

Hope it will not impact loan availability to us the retail investors. In Q42015,
   Total Issued        Avg interest rate
E   $175,432,875     19.15%   
FG $60,415,775       24.11%   

The targeted 28.5% is way higher than average FG in 4Q2015. Will LC issue subprime loans specifically for that deal?
Title: Re: LC is going to do their own securitizations
Post by: PhilGD on April 30, 2016, 02:20:08 PM
Quote
Jefferies Group is planning to bundle at least $150 million of consumer loans from LendingClub Corp. into bonds and sell them to investors in May,The Jefferies transaction in May will be backed by riskier consumer loans with an average interest rate of 28.5 percent, one of the people said, while Goldman Sachs’s will be tied to debt at the lower end of the "prime" scale.

Hope it will not impact loan availability to us the retail investors. In Q42015,
   Total Issued        Avg interest rate
E   $175,432,875     19.15%   
FG $60,415,775       24.11%   

The targeted 28.5% is way higher than average FG in 4Q2015. Will LC issue subprime loans specifically for that deal?

That deal specifically is not a securitization of standard program loans.
Title: Re: LC is going to do their own securitizations
Post by: rawraw on May 01, 2016, 10:45:55 AM
Maybe it's to fill Santandar's former volume
Title: Re: LC is going to do their own securitizations
Post by: newstreet on May 01, 2016, 12:53:05 PM
Its very simple.  LC does not have enough buyers so they have to securitize.  There original business model is not panning out.

Looks like Prosper is hitting the skids-shutting down healthcare and laying off around 100 people.  Good thing their execs cashed out at last round. 
Title: Re: LC is going to do their own securitizations
Post by: hzhou9 on May 01, 2016, 02:00:49 PM
Its very simple.  LC does not have enough buyers so they have to securitize.  There original business model is not panning out.

Looks like Prosper is hitting the skids-shutting down healthcare and laying off around 100 people.  Good thing their execs cashed out at last round.

I remember your id, and several others - you guys are shorting LC, right? You guys disappeared for a while since LC beat estimate and raise forecast in last ER.
I will say you should just leave - we are discussing LC as retail investors, and look at yourselves, what have you contributed except malicious interpret of everything?
Title: Re: LC is going to do their own securitizations
Post by: nonattender on May 01, 2016, 05:37:06 PM
Looks like Prosper is hitting the skids-shutting down healthcare and laying off around 100 people.

Hmm.  I haven't seen that news.  Got a link?
Title: Re: LC is going to do their own securitizations
Post by: newstreet on May 03, 2016, 08:43:44 PM
Its very simple.  LC does not have enough buyers so they have to securitize.  There original business model is not panning out.

Looks like Prosper is hitting the skids-shutting down healthcare and laying off around 100 people.  Good thing their execs cashed out at last round.

I remember your id, and several others - you guys are shorting LC, right? You guys disappeared for a while since LC beat estimate and raise forecast in last ER.
I will say you should just leave - we are discussing LC as retail investors, and look at yourselves, what have you contributed except malicious interpret of everything?



Malicious interpret of everything??  Get your head out of your butt.  Look at what happened to Prosper today.  Remember my ID buddy-clearly thats more important than the facts. 
Title: Re: LC is going to do their own securitizations
Post by: nonattender on May 03, 2016, 09:21:21 PM
Nice heads up, broad40.  Thx.  I always expect Prosper to screw up, but I never know exactly when the next eruption will occur...
Title: Re: LC is going to do their own securitizations
Post by: newstreet on May 04, 2016, 07:24:10 AM
I truly feel sorry for the employees.  Majority of these fntech companies are run by young guys and funded by young guys with little to no credit or operating experience.  It's all smoke and mirrors and selling the hype. Peter Renton's knowledge is limited as well---but he probably built the most profitable business in the "fintech" world.  Hats off to him for that.
Title: Re: LC is going to do their own securitizations
Post by: rawraw on May 04, 2016, 12:18:30 PM
I truly feel sorry for the employees.  Majority of these fntech companies are run by young guys and funded by young guys with little to no credit or operating experience.  It's all smoke and mirrors and selling the hype. Peter Renton's knowledge is limited as well---but he probably built the most profitable business in the "fintech" world.  Hats off to him for that.
I think this is broadly correct. I used to want to start a more critical version of lendacademy blog, but decided against it. But I still think LC is a good company and an exception in the industry

Sent from my SAMSUNG-SM-G935A using Tapatalk

Title: Re: LC is going to do their own securitizations
Post by: Fred on May 05, 2016, 12:02:55 AM
Its very simple.  LC does not have enough buyers so they have to securitize.

Hmm ... has LC turned around quickly?   In August 2013, LC had no loans on the platform -- http://www.lendacademy.com/forum/index.php?topic=1484.0.
Title: Re: LC is going to do their own securitizations
Post by: hzhou9 on May 05, 2016, 08:57:17 PM
Its very simple.  LC does not have enough buyers so they have to securitize.  There original business model is not panning out.

Looks like Prosper is hitting the skids-shutting down healthcare and laying off around 100 people.  Good thing their execs cashed out at last round.

I remember your id, and several others - you guys are shorting LC, right? You guys disappeared for a while since LC beat estimate and raise forecast in last ER.
I will say you should just leave - we are discussing LC as retail investors, and look at yourselves, what have you contributed except malicious interpret of everything?



Malicious interpret of everything??  Get your head out of your butt.  Look at what happened to Prosper today.  Remember my ID buddy-clearly thats more important than the facts.

Being a loan investor, I would care much about whether LC keeps doing underwriting properly, how LC adjusts rates, which loans to pick, and whether the unemployment keeps low - these are my Fundamentals to look at. Why is "Prosper cutting healthcare staff" interesting to me?

Sorry for saying "Malicious interpret of everything" if it hurts. And I remember your ID just because it always sends posts without useful information, and always with negative tones. I dont want to waste my time arguing with you, and this is my last post to answer this post.

Title: Re: LC is going to do their own securitizations
Post by: Rob L on May 05, 2016, 09:17:20 PM
Really at a loss to understand what's going on here. Securitization of LC loans has been done before; just by Wall Street investment houses and not LC; correct? So now LC will be doing same and cutting out the middle man so to speak. LC has to come up with the money up front to buy the loans; then sells chunks of loan tranches to large investors. Once sold LC has no skin in the game; they just service the loans (unlike banks that sold mortgages to Fannie/Freddy with a put back option before the great recession). Is this basically right or do I need a I need a lesson in securitization 101?
Title: Re: LC is going to do their own securitizations
Post by: PhilGD on May 05, 2016, 10:54:54 PM
Really at a loss to understand what's going on here. Securitization of LC loans has been done before; just by Wall Street investment houses and not LC; correct? So now LC will be doing same and cutting out the middle man so to speak. LC has to come up with the money up front to buy the loans; then sells chunks of loan tranches to large investors. Once sold LC has no skin in the game; they just service the loans (unlike banks that sold mortgages to Fannie/Freddy with a put back option before the great recession). Is this basically right or do I need a I need a lesson in securitization 101?

I think they way it works is, LC will find an investment bank to help them put the deal together. In this case I believe it's Goldman Sachs and/or Jeffries. The IB will buy the loans from LC at some small discount to par value and then warehouse the loans until the deal is closed. The IB will work with LC to structure the deal and suggest initial pricing on the tranches, and then sell the tranches to investors. Potentially, LC could retain skin in the game through holding the residual piece in the deal or by holding on to an equity share in the trust so that they'd have exposure to any excess spread.

In prior securitizations of LC loans LC would not have been directly involved in the structuring/pricing aspect and no opportunity to retain skin in the game.

I'm not positive so hopefully someone can correct me if I'm wrong on this.
Title: Re: LC is going to do their own securitizations
Post by: Fred93 on May 05, 2016, 11:13:09 PM
I'm not positive so hopefully someone can correct me if I'm wrong on this.

Just no way to know until the details are released.  There are many ways each aspect could be handled. 

It would be trivial to borrow short term money from a big investment bank to fund a deal.  The borrowing would be backed by the loans, so would be low cost money.  Could also be a partnership with a big bank who assembles and funds the deal, as you suggested.  Could have skin in the game or not. 

One advantage to LC doing securitization rather than a bank is that then LC gets to keep the profit that would have gone to the bank.  This business has been all about bank disintermediation, right?  So why give banks a piece of the profit now?

There was a panel at lendit on securitization.  All the panel members stressed how important it is for an originator to make everything look the way wall street is used to seeing it.  Was funny.  This just indicates the low level of intelligence among these institutional investors.  If it has a CUSIP and I get a quote on bloomberg and it has a rating and it looks similar to other kinds of securitizations then I buy it.  You and I didn't work that way!  We learned about this new kind of asset, and learned how to choose what loans to invest in.  I'm expecting that these new securitizations are all going to be broad index products, similar to what was done with mortgages in the past.  I hope LC figures out how to earn a big markup from these guys.
Title: Re: LC is going to do their own securitizations
Post by: Rob L on May 06, 2016, 10:47:25 AM
Thanks for helping me understand.
Title: Re: LC is going to do their own securitizations
Post by: Fred93 on May 08, 2016, 01:17:12 AM
Some info, but not completely clear whether this is the same project RL has spoken about
Dated 4/29/16 ...
http://www.bloomberg.com/news/articles/2016-04-29/goldman-jefferies-said-to-start-marketing-lendingclub-abs-deals
Quote
Jefferies Group is planning to bundle at least $150 million of consumer loans from LendingClub Corp. into bonds and sell them to investors in May, in the first of a series of such deals, people with knowledge of the matter said.

Goldman Sachs Group Inc. is planning to also buy loans from LendingClub and package them into bonds, one of the people said. LendingClub, which makes loans to consumers over the Internet, aims for deals like these to help cut funding costs.

The Jefferies transaction in May will be backed by riskier consumer loans with an average interest rate of 28.5 percent, one of the people said, while Goldman Sachs’s will be tied to debt at the lower end of the "prime" scale.

For the May sale, loans will be deposited into a special-purpose vehicle called LendingClub Investment Trust that will issue asset-backed securities with short maturities and credit ratings as high as A- from Kroll Bond Rating Agency, one of the people said.

GS and Jefferies are classy names to have as partners.
Title: Re: LC is going to do their own securitizations
Post by: P2PFact on May 08, 2016, 10:51:45 AM
Some info, but not completely clear whether this is the same project RL has spoken about
Dated 4/29/16 ...
http://www.bloomberg.com/news/articles/2016-04-29/goldman-jefferies-said-to-start-marketing-lendingclub-abs-deals
Quote
Jefferies Group is planning to bundle at least $150 million of consumer loans from LendingClub Corp. into bonds and sell them to investors in May, in the first of a series of such deals, people with knowledge of the matter said.

Goldman Sachs Group Inc. is planning to also buy loans from LendingClub and package them into bonds, one of the people said. LendingClub, which makes loans to consumers over the Internet, aims for deals like these to help cut funding costs.

The Jefferies transaction in May will be backed by riskier consumer loans with an average interest rate of 28.5 percent, one of the people said, while Goldman Sachs’s will be tied to debt at the lower end of the "prime" scale.

For the May sale, loans will be deposited into a special-purpose vehicle called LendingClub Investment Trust that will issue asset-backed securities with short maturities and credit ratings as high as A- from Kroll Bond Rating Agency, one of the people said.

GS and Jefferies are classy names to have as partners.

I suppose these loans will be coming from whole loan program and thus take precedence over retail investors. Hopefully they don't pick all the good ones and leave us what's remaining...
Title: Re: LC is going to do their own securitizations
Post by: Rob L on May 08, 2016, 12:37:03 PM
GS and Jefferies are classy names to have as partners.

Wonder what ever happened to the story that GS is planning to go into the marketplace lending business themselves?
Title: Re: LC is going to do their own securitizations
Post by: AnilG on May 08, 2016, 01:31:12 PM
I believe GS will get into marketplace lending through acquisition. GS already solved lender side by acquiring GE Capital Bank, a source of low cost capital, the main challenge for standalone marketplace lending platforms. GS only need online borrower channels and online servicing platform.

Wonder what ever happened to the story that GS is planning to go into the marketplace lending business themselves?
Title: Re: LC is going to do their own securitizations
Post by: Fred93 on May 08, 2016, 02:53:18 PM
GS and Jefferies are classy names to have as partners.

Wonder what ever happened to the story that GS is planning to go into the marketplace lending business themselves?

http://lending-times.com/goldman-sachs-names-mosaic-their-p2p-lender-and-hires-team/

http://www.crowdfundinsider.com/2016/04/84721-goldman-sachs-gsbank-may-use-deposits-to-support-mosaic-p2p-lending-platform/
Title: Re: LC is going to do their own securitizations
Post by: Fred93 on May 08, 2016, 03:06:57 PM
I suppose these loans will be coming from whole loan program and thus take precedence over retail investors. Hopefully they don't pick all the good ones and leave us what's remaining...

Two things.

1. RL has often said that the retail lenders are important because they'll stick around during an institutional money downturn.  Now there's been such a downturn, so the threat that RL spoke about has been demonstrated.  Recent events reinforce the importance of the retail market, at least to those who understand this, such as the guy running LC.  Therefore he won't do this in a way that damages the retail market.

2. I don't think securitization guys will ever "pick" loans.  They don't think that way.  They will select broad categories, perhaps "all", or perhaps filtered by a FICO range, so they can give them some big name like "super prime".  They would never filter on something like an LC grade, because the institutional buyers sitting at their Bloomberg terminals have never heard of LC grades, and really don't want to know.  They have heard of FICO, as it comes up in all their prior work with mortgage bonds, etc.  Gotta have something this buyer can understand, can explain to his boss, to the investment committee, etc.  (decreasing knowledge of LC details as you go up the chain)  So no, the chance that they will "pick all the good ones" is ZERO.
Title: Re: LC is going to do their own securitizations
Post by: Rob L on May 08, 2016, 08:18:17 PM
Fred93 thanks for bringing me up to date. It's not hard to figure out where GS is going with this.
They bought the old GE Capital and now we have, among other things, the online GSBank. It's pays the highest rate of any FDIC insured savings account I know (1.05%) and has about $16B in deposits for starters. So, GS sets up their own equivalent of LC, funds all the loans themselves from deposits and keeps the loans on their books. Or GS doesn't have to keep them. They can securitize them, sell them off, and repeat. Doesn't matter.

Other banks have been buying LC whole loans for years, BUT, the FDIC required them to perform due diligence as if they underwrote the loans in the first place. They would evaluate whole loans released at LC release times, not unlike we retail folks do for fractional loans, and buy the ones that met their due diligence criteria. Since GS will be underwriting all the loans then they meet the FDIC criteria by definition. Bottom line GS pays 1.05% on deposits and earns whatever% from the marketplace loans. Depositors are happy because 1.05% FDIC insured is as good as it gets (maybe GS even up's it along the way) and GS makes the spread using OPM. If they securitize and sell they can issue riskier loans. The ones they keep would probably be what LC calls A loans.

PS: Since they are a national bank they wouldn't have the Madden problem either.
Title: Re: LC is going to do their own securitizations
Post by: Rob L on May 08, 2016, 08:23:31 PM
I believe GS will get into marketplace lending through acquisition. GS already solved lender side by acquiring GE Capital Bank, a source of low cost capital, the main challenge for standalone marketplace lending platforms. GS only need online borrower channels and online servicing platform.

If LC's quarterly performance doesn't meet investor expectations tomorrow who knows where the stock will go. What would GS pay to buy the best in class market lending platform?
Title: Re: LC is going to do their own securitizations
Post by: Fred93 on May 08, 2016, 08:38:46 PM
Bottom line GS pays 1.05% on deposits and earns whatever% from the marketplace loans. Depositors are happy because 1.05% FDIC insured is as good as it gets (maybe GS even up's it along the way) and GS makes the spread using OPM.

Sounds fine, but there's one question bugging me: Why don't all banks do this?  They used to do this.  They've been winding down their consumer lending, allowing the new marketplace lenders to fill the void. 
Title: Re: LC is going to do their own securitizations
Post by: Rob L on May 08, 2016, 09:30:04 PM
Sounds fine, but there's one question bugging me: Why don't all banks do this?  They used to do this.  They've been winding down their consumer lending, allowing the new marketplace lenders to fill the void.
Maybe the costs of entry requires national rather than regional presence. Too costly for the regionals to build a platform and looks like small potatoes to the nationals? GS thinks maybe not so small potatoes. After all GS is coming off a terrible quarter and is searching for the next new thing(s) to innovate and move forward. I wouldn't bet against them.
Title: Re: LC is going to do their own securitizations
Post by: P2PFact on May 08, 2016, 10:45:45 PM
Sounds fine, but there's one question bugging me: Why don't all banks do this?  They used to do this.  They've been winding down their consumer lending, allowing the new marketplace lenders to fill the void.

The bank charter and FDIC insurance guarantee don't come free. As a bank you need to comply all the regulatory requirement including Basel III, IV, CCAR, Volcker, FRTB, and the list keeps growing. GS already has infra/cost to meet these requirements. Another way to ask the question is why not LC does the same thing GS does. Offering saving account at 1% and lend the money out and make a nice profit on spread. And no need to worry about WebBank going under.
Title: Re: LC is going to do their own securitizations
Post by: AnilG on May 08, 2016, 10:48:29 PM
Why would GS acquire a market lending platform? If GS is going to be sole lender, lender servicing platforms like LC are of no use. What GS needs is online borrower acquisition channel, something like CreditKarma.

If LC's quarterly performance doesn't meet investor expectations tomorrow who knows where the stock will go. What would GS pay to buy the best in class market lending platform?
Title: Re: LC is going to do their own securitizations
Post by: newstreet on May 09, 2016, 08:54:34 AM
Its very simple.  LC does not have enough buyers so they have to securitize.  There original business model is not panning out.

Looks like Prosper is hitting the skids-shutting down healthcare and laying off around 100 people.  Good thing their execs cashed out at last round.

I remember your id, and several others - you guys are shorting LC, right? You guys disappeared for a while since LC beat estimate and raise forecast in last ER.
I will say you should just leave - we are discussing LC as retail investors, and look at yourselves, what have you contributed except malicious interpret of everything?
[/quote



This was probably an expensive lesson for you.