Sole arranger Deutsche Bank priced the £172.8m Aa3/AA(L) class ‘A’ notes, rated by Moody’s and DBRS, at 70bp over one month Libor. The spread was initially set in the 65bp area and then revised to 68bp-70bp. The bonds have a weighted average life of 1.1 years.
The final spread offered a considerable saving compared with the senior class of the issuer's previous transaction, which was priced last year at 145bp over.
In contrast to the senior notes, there was comparatively more demand for the mezzanine bonds, with the £8.6m A3/A-rated ‘B’ and £8.6m Baa3/BBB rated ‘C’ tranches pricing at the tighter end of initial guidance at 125bp and 190bp respectively. The ‘B’ class was 3.9 times subscribed and the ‘C’ class 4.6 times.
The double-B rated 3.29 year class ‘D’ notes and 3.37 year single-B rated class ‘E’ notes were also placed at an undisclosed spread.
The consumer loans were originated and are serviced by Zopa. Citi is the cash manager of the transaction.
Despite the senior tranche pricing wide of guidance, an investor who looked at the deal felt that the execution was favourable.
No discount for name or collateral
“No one seems to be insisting on a discount for the collateral type or for the issuer,” he said.
He noted that the senior triple-A rated 2.2 year class of Kensington Mortgages’ Finsbury Square RMBS had been priced in July at 68bp over three month Libor.
Kensington, the investor said, has a long track record in the securitization market, whereas P2P Global Investments does not.
Moreover, the RMBS notes are secured on residential owner occupied properties whereas MOCA 2017-1 is collateralised with unsecured consumer loans originated via the nascent marketplace lending sector.
But at £170m the deal is relatively small and would only therefore need one or two large anchor buyers to account for most of the demand.
“Execution suggests that the big accounts are now buying when not so long ago they were generally putting up any excuse not to buy,” said the same investor.
Voyage of discovery
A second investor did not think too much should be read into the revision wider on the 'A' class, given that the sector is relatively new.
"It is only the second deal from this issuer, the deal size is not too big and the sector as a whole has not gone through a real test yet," the investor said. "That means some traditional buyers might not consider the asset type yet. I think the 65bp initial talk didn’t recognise the latter elements and the deal had to widen out a bit to a more realistic level."
He noted that some issuers and syndicates start with a wide price talk, have a massive bookbuilding then tighten the talk several times. "Here, the strategy seemed to have been to be realistic enough from the start with price talk possibly a tad too aggressive."
But he said both strategies have pros and cons.
Transparently performing
A credit analyst that had seen the deal said that Zopa’s previous transaction had performed well, describing the cumulative default rate of 2.4% as “pretty good”.
He also pointed out that a considerable portion of the class 'A' notes had paid down and noted that the securitization was “not anywhere close to hitting triggers.”
This stands in contrast to similar marketplace loan securitizations in the US, where performance triggers have been breached, causing cash to be diverted to the senior classes.
The analyst also said that in contrast to many competing platforms where transparency is opaque, he was impressed by the regular monthly service reports provided by HSBC.
UK debt woes ahead
Nevertheless, UK consumers are overloaded with debt, and with rates set to move higher and with quantitative easing still to be rolled back, there are concerns the UK consumer credit outlook is set to deteriorate.
In this vein it is notable that the UK’s largest car dealer, Pendragon, warned that its profits this year will be 20% lower than previously forecast.
“It is a big deal because it rather suggests that the cycle of consumer debt has peaked,” said a second analyst following the Pendragon news.
“In turn everyone recognises that stalling credit growth means that economic growth will, at best, slow and perhaps even slip into reverse,” he continued.