Lending Club Said to be Eyeing Bond Deals for Loans
Could FinTech lending leader Lending Club be looking to make bond deals for some of their loans? According to a recent story in the Wall Street Journal it’s looking like the answer is “yes.” WSJ is reporting that Lending Club is working with Goldman Sachs Group Inc. and Jefferies Group to create bundles of their loans to be sold as bonds to investors. The publication also says these bonds could be discussed with potential investors as early as next week according to those familiar with the deals. So far Lending Club themselves have declined to comment on the story.
If this is accurate it would mark a fairly significant shift for the peer to peer lender. Previously the company’s CEO Renaud Laplanche had highlighted Lending Club’s freedom from the bond market as a plus. In October of last year Laplanche told analysts, “We have a big competitive advantage over some of the newer platforms that, for the most part, have no retail investors and considerable concentration in investor base or strong reliance on the securitization markets.” However it seems now that the company is looking to diversify their revenue streams which have traditionally been made up mostly by fees charged to borrowers.
As the Wall Street Journal also notes this could be a test for Lending Club, whose stock has struggled some since hitting the New York Stock Exchange in 2014. In spite of that the company continues to grow rapidly having recently surpassed $16 billion in loans facilitated — up $3 billion from just a quarter prior. Still the company has focused on bringing even more investors to the platform by, for example, raising borrower interest rates for new loans in recent months. Offering their loans in the form of bonds not only brings more investors to the table but also provides the company with a new potential long-term revenue stream.
Although the exact structure of these bonds could not be determined yet, WSJ report that Goldman Sachs will be packaging loans made up of highly creditworthy borrowers (likely those rated ‘A’ or ‘B’ on the Lending Club platform). Meanwhile Jefferies Group is expected to bundle some of the riskier but more profitable loans made to borrowers with lesser credit scores. It is also unclear how large these transactions with both firms will be.
Overall this could be a positive move for Lending Club. While the company has been adverse to bond deals in the past its strength over the past several years may also give them more leverage in shaping these deals to their liking. Additionally, while Laplanche notes the “strong reliance on the securitization markets” that other lenders have, Lending Club’s focus on individual investors shows that the company will not be dependent on these bonds but is simply open to new forms of revenue. It will be interesting to see how this shift in strategy will affect the company and the FinTech sector at large.