What: Unsecured prime Lending Club consumer loan pool
Term: 60-mo fully amortizing
Servicing: Retained
Target IRR: 25%
Downside IRR (3x defaults): 13%
Size: $601k UPB (unpaid principal balance) + charged off
Duration: 3.5 mo
1/
Purchase Price: 93.9% of UPB plus accr interest. $565k outlay.
How: Seller intro’d through an industry relationship. Portfolio coming out of a securitization. Paying heavy fixed monthly fees that will eat into the yield over remaining life.
2/
Pricing: Used 2x baseline default rates. Model cash flows at loan level and discounted at a 20% rate. Heavily marked down DQ, charged off, and hardship.
Aware seller had few options, so just needed to get to a price that they’d accept.
3/
Strats (averages):
Active Loans: 230
Loan Balance: $2,964
Maturity: 7.0 mo
Duration: 3.5 mo
DQ (1-120 DPD): 7.4%
Interest Rate: 14.7%
Original FICO: 699
Current FICO: 700
DTI: 16.9%
Income: $91,280
4/
Expectations:
25% IRR with current default rates and decent charge off recoveries.
Downside models to 13% yield if defaults are 3x baseline levels for the entire remaining life of the pool (very unlikely).
Ask away, will answer what I can.
5/
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Prediction: The next 3-6 months are again going to hit the low-income worker very hard, driving greater wealth gaps, which will drive further social unrest.
Hope I'm wrong.
My two guesses why:
👇
1.Small business unemployment is increasing.
This weeks claims are a slight uptick, plus many of my small business calls in last 2 weeks included discussions about pending layoffs or reduction of hours.
Winter will not be kind to restaurants/entertainment either.
2.The stimulus bill will miss.
All we need is another round of PPP and extension of unemployment benefits.
But, IF a stimulus bill passes, those two components will be less than before and more will go to those who don’t need it (stable businesses and employed workers).