BlackRock Plans to Sell Rated Bonds Backed by Prosper LoansJody Shenn and Noah Buhayar
BlackRock Inc. plans to sell the first rated securities backed by consumer loans arranged through Prosper Marketplace Inc. as investors seek to profit from debt created on the peer-to-peer platform.
About $281 million of the bonds may receive an investment grade of Baa3 from Moody’s Investors Service, while $45 million may be rated Ba3, the credit grader said Wednesday in an e-mailed statement. The debt is being issued by a vehicle called Consumer Credit Origination Loan Trust 2015-1 created by a unit of BlackRock on behalf of funds and accounts it manages.
Consumers are turning to online platforms such as Prosper and larger rival LendingClub Corp. to consolidate debt and finance home repairs. The San Francisco-based companies pioneered a model of linking up borrowers with individuals who wanted to fund them, earning them the moniker of peer-to-peer lenders. More recently, institutional investors have gotten in on the act, helping fuel a surge in originations.
The companies’ main products are unsecured consumer loans for as much as $35,000 and as long as five years. Borrowers request money online, the platforms vet applications, and investors pledge funding.
BlackRock, on behalf of its clients, plans to at least initially hold onto an additional $18.2 million of junior securities tied to the loans, Moody’s said in a presale report. The money manager, which also invested customer funds in Prosper itself, has been buying “a cross-section of all loans originated through the Prosper platform” since November 2013, according to the report.
Asset managers, hedge funds, family offices and individuals have been snapping up loans from Prosper and LendingClub, because they provide potentially higher returns than traditional debt. Having rated bonds backed by the loans could draw money from more types of institutional investors and multiply potential returns for issuers of the securities.
Brian Beades, a spokesman for BlackRock, the world’s largest asset manager, declined to comment, citing the open status of the offering.
Prosper announced its first takeover this week, saying it paid $21 million to buy American HealthCare Lending LLC. The target offers loans for elective medical procedures including dentistry, bariatric and spinal surgery, mental health programs and hospital stays. Its website says debts can reach $100,000.
Social Finance Inc., another marketplace lender that has focused on student loans, sold $313.8 million of securities backed by borrowing this month, its largest offering yet.