Online marketplace lender Social Finance Inc. is preparing to sell $411 million in bonds backed by student debt with the highest grades since coming to market for the first time in 2013.
Moody’s Investors Service assigned provisional ratings on Monday of as high as Aa2 for the deal, SoFi’s largest to date. That’s three levels higher than the grades on a SoFi sale in January, according to a deal prospectus obtained by Bloomberg. The expected grades are the highest ever received for a marketplace-lender bond deal, Paul Fielding, head of capital markets at SoFi, said in an interview.
Last month, Moody’s called securitization a “viable” source of financing, but warned of several risks unique to the sector. The top concerns included little performance history and only an “implicit” alignment of interests between loan performance and originator. Sponsors like SoFi generally don’t retain risk by holding onto parts of the notes over their lifetime.
Other potential issuers looking to sell similar kinds of bonds backed by online-funded and refinanced student debt include CommonBond of New York. That firm has discussed a first-time deal of around $100 million and may hire Morgan Stanley to underwrite it, its Chief Executive Officer David Klein said in April.
In recent months, SoFi, which is moving toward an initial public offering, has diversified its offerings with new loan products, such as mortgages. But its primary business remains refinancing graduate education loans, which it does by connecting students with individual and institutional investors.
SoFi originated more than $600 million in the first quarter, according to Chief Executive Officer Mike Cagney. SoFi is targeting more than $4 billion in originations this year. The company is using progress on those targets as guidelines to time its public offering filing, Cagney said in April.
This week’s deal will be the company’s second this year, according to data compiled by Bloomberg. It is backed primarily by refinanced education debt to 5,843 borrowers.
SoFi has hired Goldman Sachs Group Inc. and Morgan Stanley as lead managers on the deal, the documents show.
Goldman spokesman Michael DuVally declined to comment, as did a spokesman for Moody’s. Morgan Stanley representatives didn’t immediately return calls.
(An earlier version of this story was corrected to clarify the description of the Moody’s bond rating in the second paragraph and the spelling of the name in the final paragraph.)