Barclays Plc and Morgan Stanley are helping a California startup create a bond backed by peer-to-peer student loans in what the firm said would be the first deal of its kind to get a credit rating.
The two banks were hired by Social Finance Inc., a peer-to-peer lender based in San Francisco, to structure and underwrite the transaction, said Chief Financial Officer Saturnino Fanlo. The deal will include $150 million in senior notes rated by Toronto-based DBRS Inc. and may be graded A, the sixth-highest investment-grade level, Fanlo said. The remaining $20 million will be equity, he said.
“This is the first rated securitization for peer-to-peer loans,” Fanlo said. “We’re trying to go all the way back to when securitization started, before it got complex.”
SoFi is part of a growing industry that’s cutting out banks by introducing borrowers online to individuals and institutions that provide credit in return for yields that are typically higher than 10-year Treasuries. LendingClub Corp., the largest U.S. peer-to-peer lender, is valued at $2.3 billion, two people with knowledge of the deal said this week.
Spokesmen for London-based Barclays, Morgan Stanley in New York and DBRS declined to comment. Barclays will structure the transaction while Morgan Stanley will serve as the underwriter, with the deal expected to be completed next month, he said.
SoFi said last month it has raised about $500 million in debt and equity from venture capitalists, financial institutions and alumni investors. The company provides refinancing for federal and private student loans to graduates of 100 schools, including Harvard University, Yale University, and seven members of the University of California system.
To finance the loans, SoFi counts on alumni, who act as lenders and investors. Money from alumni is pooled in funds for each school, and SoFi raises additional capital from banks to increase the size.
SoFi was co-founded in 2011 by Mike Cagney, a hedge-fund manager, and the lender is backed by Renren Inc., the Chinese social-networking website. Fanlo is a former Wells Fargo & Co. executive and the former chief executive officer of KKR Financial Holdings LLC, the specialty finance company.
SoFi competes with CommonBond Inc., a New York-based student loan provider that raised more than $100 million in September from investors including former Citigroup Inc. CEO Vikram Pandit. CommonBond started last year and is now going after students and graduates from 20 business schools.