ZOPA’S £138m securitisation deal is set to attract institutional investors and help loan originator P2P Global Investments (P2PGI) meet its return target.
The peer-to-peer platform is working on the first UK-based securitisation of P2P consumer loans, which involves packaging them up and selling them off in tranches to large-scale investors.
It is understood that the value of the deal for investment trust P2PGI is in its potential to attract new investors to the sector, while also lowering the future cost of funding. It is hoped that banks will be more likely to invest in the sector if they see asset managers buying up the securitised loans.
It is thought that P2PGI would consider securitisation deals with other P2P platforms in the future, if this transaction proves successful.
“P2PGI tends to go for relatively secure, high-quality, low-rate loans and gear them up, so this is in line with its existing strategy,” said a City analyst who covers the sector.
“P2PGI has to increase its gearing in order to reach its return target. But the deal also increases its risk, as if the market value of the asset changes it could affect the fund’s net asset value.
“You could see that mark-to-market volatility as a good or a bad thing,” he added.
Deutsche Bank is the sole arranger and lead manager on the new issue, which will be traded on the Irish Stock Exchange, not in London where P2PGI is quoted. It is understood this is to make the offering more cost-efficient due to Dublin’s low-tax structure.
Moody’s yesterday gave the £114m senior tranche of Class A notes an Aa3 rating and the £7.5m tranche of class B notes an A2 rating.
The deal is backed by 27,137 loans, which are mainly used to finance cars, home improvements and service existing debts. The average loan is £5,500 and the lifetime expected defaults are seven per cent, according to Moody’s.
It is thought that Zopa is meeting with investors this week and that the pricing of the loans is expected later this month.
Zopa follows Funding Circle and LendInvest in moving into the securitisation arena, which is already popular among US P2P platforms. Painfully low central bank rates in the developed world mean that investors are looking towards the P2P space in search of high returns.
Zopa, P2PGI and Deutsche Bank declined to comment.
For more on securitisation, look out for the full feature in the first print edition of Peer-to-Peer Finance News, which will be out on 3 October and available at the LendIt conference on 10/11 October.