Revived Lending Club, Jefferies deal basks in warm reception

Issuer Jefferies priced the unrated 144A transaction to yield 3.75% for the $88.06m ‘A’ class, 25bp tighter than initial guidance. The $16.93m class ‘B’ notes were priced at a yield of 6.5%, or 75bp tighter than guidance. Marketplace loan investors say that the pricing reflects a wave of demand, as well as renewed confidence in Lending Club, following a cool-down in the sector after confidence was sapped by the control issues at the online lender.

This is the first time that Lending Club has issued a deal from its own branded shelf, though sources say it is unclear if Jefferies purchased and packaged the loans into securities, or merely structured the deal for Lending Club.

“I think it is a good sign for Lending Club and for investor confidence in the underlying assets. In general, people are confident that lenders are at least underwriting a product that can be fairly valued,” said Brian Korn, chair of the digital finance and marketplace lending group at Manatt.

The $105m deal is backed by unsecured subprime consumer loans. It marks a comeback for Lending Club and a revival of its partnership with Jefferies, which had scuttled the deal in May after an internal review at the lender discovered control problems related to a portfolio of loans sold to the bank.

“There was no crisis of [loan] fundamentals, but a crisis of control,” said an executive at an investment firm focused on marketplace lending and specialty finance. “With that perspective, given the stabilisation at Lending Club with a new CEO in place, and the simple passage of time, the market in typical fashion is now looking at this as glass half full.”

Chicago-based subprime consumer lender Avant also hit the market this week with an ABS offering, the $200m Avant Loans Funding Trust 2016-C. However, the lender had to exclude any loans made in Colorado after being challenged by a regulator in the state that took issue with Avant’s method of exceeding state interest rate caps.

Avant partners with Utah-based WebBank to export a higher rate to borrowers in states with lower limits on what a lender can charge. Moody’s Investors Service earlier this year described WebBank as a “pass through sham party”.

The pre-sale for the deal from Kroll Bond Ratings states: “The regulator concluded that any Colorado limitations on interest rates, late charges and other charges apply to such loans that have been transferred to a non-bank assignee.” In other words, a buyer of the loans or the holder of the ABS backed by them cannot collect interest if it exceeds the state limit.

It is a familiar issue for marketplace loan investors, who were disappointed in June when the US Supreme Court declined to review the Madden vs. Midland case, a controversial ruling that closed the loophole lenders use to exceed interest rate caps.

“It seems like the regulator is breaking some new ground here, where they are effectively trying to push through what they see as the future where [Madden vs. Midland] is effectively nationalised,” Korn said.