Securitised P2P loans see wave of ratings upgrades
Securitised peer-to-peer loans are performing well on the capital markets despite navigating Brexit and the pandemic in recent years.
Analysis by Peer2Peer Finance News has found that ratings agencies such as Moody’s, DBRS Morningstar and Fitch have regularly upgraded P2P securitisations issued since 2016 as loans continue to be repaid early or on time and default expectations either stay the same or improve.
It comes amid increased regulatory scrutiny of the P2P lending sector due to worries about investor understanding of the level of risk.
Here is how P2P securitisations have performed.
Funding Circle
Funding Circle was the first platform to securitise P2P loans, beating Zopa to the debt capital markets in May 2016 with a £129m transaction called the Small Business Origination Loan Trust 2016-1. The deal was arranged by Deutsche Bank and sponsored by KLS Diversified Asset Management. Many of the loans have since been paid off but in 2018, Moody’s upgraded each class of notes.
Moody’s said the loans were upgraded as more of the portfolio has been repaid and defaults “have remained at lower levels than Moody’s initial forecasts.” The P2P business lending platform also secured a £206m deal in April 2018 and a £187m transaction in April 2019, supported by London listed trust P2P Global Investments (P2PGI).
P2PGI has since been acquired by Waterfall Asset Management. The 2018 transaction was upgraded in 2020 by DBRS Morningstar, which cited the “timely payment of interest and the ultimate payment of principal on or before the legal final maturity date.”
Another two rounds of loans were securitised by Funding Circle in July and November 2019, respectively. One was worth £232m and the other £198m.
Two years later in November 2021, Moody’s upgraded the three transactions, attributing this to a large amount being paid ahead of schedule.
“The upgrades are primarily prompted by a significant increase in credit enhancement for the affected tranches following large amortisation of the portfolios through unscheduled principal payments, as well as the contribution from excess spread partially offsetting increased defaults,” Moody’s said.
Read more: Fitch upgrades Zopa securitisation
Zopa
Zopa took part in the first ever securitisation of unsecured consumer loans in September 2016. It was named Marketplace Originated Consumer Assets 2016-1 PLC or MOCA. The £138m transaction was led by investment trust P2PGI.
The most recent upgrade to the notes came in April 2019 by Moody’s which cited a “high level of prepayments.”
Another £208.9m of Zopa loans were securitised in October 2017.
The transaction was again led by P2PGI and arranged by Deutsche Bank. Two years later in November 2019, Moody’s also upgraded these notes, stating that fears over Zopa’s business model and lack of track record had been overcome by the loan performance.
Zopa’s third securitisation was in December 2019 and was worth £244.7m. It was sold by London Bay Loans Warehouse 1 Limited.
Last month, Fitch reaffirmed its triple A rating for the securitised A, B and C notes and upgraded the D and E notes. Fitch said the remaining life default assumptions on the loans remained unchanged, with the average default base case at 9.1 per cent.
The ratings agency said there was enough liquidity to cover any shortfall from payment holidays and said the portfolio withstood its tougher default assumptions that were revised during the pandemic.
“The transaction’s liability structure is able to withstand the elevated default assumptions that we revised in response to the outbreak of the coronavirus and reflect risks of potential asset performance deterioration, which justifies the upgrades,” Fitch said.
Read more: Zopa officially exits P2P lending
