February 3, 2015

P2P consumer loan bundles obtain rating from Moody's

Two groups of peer-to-peer consumer loans collectively worth more than $300 million recently obtained ratings from Moody's Investors Service, which represents a first because major credit ratings agencies have never before evaluated P2P securitizations.

Landmark rating
Moody's announced Jan. 28 that it granted the $281 million portion of the deal - which contained Class A notes - an investment-grade rating of Baa3, and provided the second, lower-quality $45 million portion - comprising Class B notes - with a speculative grade rating of Ba3.

BlackRock Financial Management, Inc. orchestrated the deal, named Consumer Credit Origination Loan Trust 2015-1, to issue the two classes of notes. To create these groups, the company will package loans originated by major P2P lender Prosper.

New opportunities
Many expect this milestone event to create new opportunities for both bankers and institutional investors, according to The Financial Times. After subprime mortgages suffered widespread defaults resulting from the housing crash, the former group has been eagerly looking for any new asset types it can package into securities and sell to the broader markets.

Professional investors may flock to these bundles, considering the funds they have offered up to purchase loans originated through P2P lending platforms, The Financial Times reported. Once these loans are packaged into securities, financial institutions can potentially generate stronger returns by making use of leverage.

Market surprise
While bankers and professional investors may be thrilled at this landmark debt rating, some market participants may feel shocked by how quickly Moody's was willing to evaluate these P2P loan bundles, according to The Financial Times.

After the financial crisis, many of these ratings agencies generated criticism for providing securities with overly-high ratings in the run up to the mortgage meltdown. Following this event, many believed the organizations were being more conservative when assessing new asset classes.

How banks can profit
Financial institutions should keep in mind that while the proliferation of P2P lending could provide them with greater opportunities to purchase loan portfolios down the road, any such transactions must be made with caution.

To maximize the chances of obtaining a loan portfolio that helps an organization achieve its investment objectives, banks might benefit greatly from working Garnet Capital Advisors, a loan sale advisory firm that has substantial experience with many types of debt.