Pagaya Investments plans to use its artificial intelligence platform to package up US$1bn-$2bn of personal loans into new bond deals this year, company executives told IFR.
The start-up sold its first such AI-managed bond - an unrated $100m trade - in December via Cantor Fitzgerald. But it now wants to be a more regular ABS issuer, Gal Krubiner, Pagaya’s CEO and co-founder, told IFR.
It plans to tap its big data platform to vet personal loans from an array of online lenders, and has previously bought loans from LendingClub, Prosper Marketplace, Upstart and others with FICO scores of 680 to just over 700.
While a typical ABS deal looks at five to six factors on a personal loan to gauge its risks, Pagaya’s platform runs an analysis on about 150,000 data points for each borrower.
“We are able to recognize good borrowers from bad borrowers,” Krubiner told IFR.
Its debut bond deal was structured with an 1.5-year weighted average life, priced at par, paid a coupon of about 4.5% and was was sold to fewer than 10 investors.
LendingClub, one of the original and biggest online lenders, sold a 1.03-year Single A minus ABS tranche in December at a lower 3.82% coupon, according to IFR data.
Despite setbacks, LendingClub recently passed the US$1bn mark for loans securitized through into ABS platform, according to KBRA.
The sector has become more mainstream in recent years as investors have looked for bonds offering more yield. Consumer loan ABS supply from online lenders reached a new high of US$8.7bn in 2018, an 11% increase from 2017, according to KBRA.
Pagaya was founded in 2016 and last February raised US$75m in debt financing from Citigroup to help grow its consumer credit business, according to a Reuters report.
Its debut ABS included a 90-day ramp period in which the platform can select more loans that fit the securitization’s specifications.
In addition to personal loan ABS, Pagaya eventually plans to issue CLOs and mortgage-backed securities where loans are picked and managed by its AI platform.
“Basically, they think they’ve built a better mousetrap and can cherry-pick loans from originators,” said one investor who has met with Pagaya in the past.
