CrossRiver Bank is transforming itself into a “liquidity” channel for its MPL partners through a new whole loan sale program, according to CEO Gilles Gade. The bank targets mid- to high-teen yields for investors, Gade said.
The bank, which originates loans for online consumer lending platforms including Marlette, Affirm, and Upstart, today retains about 10% of those loans on its balance sheet, according to Gade. “This loan retention caused us to look for liquidity channels for ourselves as well … as we can’t hold [an] unlimited number of loans,” he said.
Contributing collateral to ABS deals is one channel, Gade said. “But we realized very soon we can’t 100% rely on securitization market, as we saw from LendingClub a year ago, so we started developing a direct selling channel with institutional investors,” he said.
The bank launched a special purpose vehicle a couple of months ago and began packaging loans seasoned to six months or one year for sale in bulk to hedge funds, Gade said. Its most recent deal was a USD 50m consumer loan package sold through this channel, he added. “As we grow capital, we’ll do larger tranches,” he said.
The SPV is private for now, and the company is in a “relationship-building” mode with various institutional investors. Gade did not disclose the name of the SPV.
The bank is looking to double the amount of loans it retains, according to Gade. “We’ll take the liquidity headache away from our partners that way,” he said, while whole loan investors will get exposure to “healthy yields” from a known asset class.
Currently, the bank retains between USD 40m and USD 50m a month on its books, and can legally offload all of that volume through whole loan sales.
“We are talking to sizeable funds, USD 10bn-plus (AUM), that want to dip their toes [in] and test our deal structures,” he said. “We have a team of structure specialists, most of them from Morgan Stanley, and they are helping us create liquidity channels for those loans that make sense for investors.”
CrossRiver hasn’t seen any erosion in its consumer loan portfolio and in the consumer lending space overall, as some analysts have suggested (see story, 20 September), according to Gade. The bank is exploring partnerships in the small business lending space as well, but has no immediate plans.
The company will continue contributing collateral to securitization deals from its partner-lenders, he said. Most recently, the bank participated in two ABS deals from Marlette – the USD 333m MFT 2017-1, and the USD 369m MFT 2017-2.
MFT 2017-1 closed on 3 March. The deal’s USD 243.35m A rated (KBRA) A notes had a 2.83% coupon, while USD 31.65m BBB rated B notes had a 4.11% coupon, according to Debtwire ABS data. MFT 2017-2 closed on 29 June. The deal’s USD 231.4m AA rated (KBRA) A notes had a 2.39% coupon, while USD 50.09m A rated B notes priced with a 3.19% coupon.