Online Lender Prosper in Talks on $5 Billion Loan-Buying Deal
August 04 2016 - 11:40AM
Dow Jones News
Online lender Prosper Marketplace Inc. is in advanced talks with
a group of investment firms to sell them roughly $5 billion worth
of loans over the next two years, people familiar with the matter
said.
If finalized, the deal would help resolve ongoing concerns that
Prosper, like its peers including LendingClub Corp., has faced
about how to fund lending after a difficult start to 2016. It would
also emphasize the major role that traditional financial players
will continue to have in what was once seen as a disruptive "peer
to peer" online lending model.
The buyers in the talks include Fortress Investment Group LLC or
an affiliate, Soros Fund Management LLC and Third Point LLC, along
with investment bank Jefferies LLC, the people said.
The loans would be bought at face value, but the firms are also
in discussions to receive equity warrants in Prosper as they make
the purchases, the people added. The potential buyers are also
talking to banks about borrowing money to support their loan
purchases, and a deal could wrap up in the coming weeks, they
said.
In addition to the deal with the four investment firms, Prosper
has also started selling loans to BBVA Compass, the U.S.
regional-banking unit of Spanish lender Banco Bilbao Vizcaya
Argentaria, according to a bank spokeswoman. BBVA's venture-capital
arm took an equity stake in Prosper last year.
Questions have swirled around Prosper since it suffered a 12%
drop in lending volume in the first quarter, sparking layoffs of
about 28% of its workforce and discussions with bankers at J.P.
Morgan Chase & Co. and Financial Technology Partners about how
to secure future funding.
Prosper, like others, was hit by a series of adverse
developments in online lending this year, including the forced
resignation of LendingClub CEO Renaud Laplanche related to
falsification of some loan data, which shook confidence of loan
buyers across the market.
These lenders have sought to upend the existing bank model by
making loans entirely online, powered by fast-decision algorithms,
then selling the loans to investors rather than using customer
deposits to finance lending.
While Prosper, founded in 2005, was the first to begin matching
loans to consumers with individual buyers, the company, along with
LendingClub and others, in recent years turned to hedge funds,
banks, and money managers to fund explosive growth that resulted in
billions of dollars of loans. Those big buyers began backing away
this year amid concerns about U.S. consumer credit, combined with
questions about the ability of lenders to maintain loan quality and
secure funding as they grew larger
Now, Prosper's deal to sell loans at face value would provide a
measure of validation of investors' confidence in its underwriting
ability. It also may give it a leg up on bigger rival LendingClub.
It had previously held early talks for billions in loan-buying
commitments with some of the same funds, including Soros and Third
Point, but didn't finalize a deal, the Journal earlier
reported.
In July, Moody's said that it wouldn't downgrade its ratings on
some bonds tied to Prosper loans, after the ratings firm warned
earlier it might do so on fears of higher-than-expected defaults.
That warning weighed heavily on a poorly-received sale of Prosper
loans by Citigroup Inc. in the spring.
Prosper and LendingClub have raised rates they charge to new
borrowers over the past few months. Loans sold in June by Prosper
were expected to yield 7.4% on an annualized basis and taking into
account expected losses, according to the company. That is short of
8.5% on such loan portfolios in 2013, but is still chunky when
compared with U.S. Treasurys and other fixed-income asset yields at
or near record lows.
Although new buyers would be a sign of confidence in Prosper,
the equity warrants being discussed may lead to dilution of
existing investors, including those who bought in the fundraising
round valuing Prosper at $1.9 billion last year. Prosper hasn't
raised money since, while shares of publicly traded LendingClub
have fallen 76% in that time.
Prosper lending in the second quarter is expected to dip sharply
again from $972 million in the first quarter, which was down from
$1.1 billion in the fourth quarter of 2015, according to people
familiar with the company. Earlier this year Prosper cut back on
marketing to new borrowers, as did other platforms, the Journal
reported.
Write to Telis Demos at telis.demos@wsj.com and Peter Rudegeair
at Peter.Rudegeair@wsj.com
(END) Dow Jones Newswires
August 04, 2016 11:25 ET (15:25 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Leucadia (NYSE:LUK)
Historical Stock Chart
From Aug 2024 to Sep 2024
Leucadia (NYSE:LUK)
Historical Stock Chart
From Sep 2023 to Sep 2024