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February 16, 2018  

Bonds Favored for Sallie's Personal Loans

Sallie Mae Bank increasingly is looking like a candidate to issue personal-loan securities.

Industry participants are envisioning an initial bond sale of $500 million to $1 billion that would hit the market late this year. The underlying accounts would consist mainly of marketplace loans that the Newark, Del., operation has been buying from Lending Club.

Sallie began accumulating personal loans in significant volumes during the second half of 2017, following up on a pilot buying program. In January, it expanded its activities by agreeing to buy $100 million of accounts from Lending Club each month until yearend.

All told, Sallie was holding $400.2 million of personal loans at yearend 2017, up from just $12 million a year earlier. Expectations at the time were that the company would fund the accounts through deposits. But the arrangement with Lending Club has changed the outlook. “You’re talking about adding more than $1 billion of new loans. Sallie doesn’t have that kind of cash on hand,” one equity analyst said.

Sallie was sitting on $15.5 billion of retail and brokered deposits at yearend 2017, up from $13.4 billion a year earlier. The company also has plenty of experience with securitization, given its status as an issuer of student-loan bonds. It completed $1.4 billion of such offerings in 2017, all backed by private accounts.

As for Sallie’s personal loans, $182 million of the borrowers represented in its yearend portfolio had credit scores of 700-749. Another $115 million had scores of 670-699, with $71 million at 750 or higher. The remaining $32 million had scores of 669 or lower.

Issuers of personal loan securities in the U.S. completed $14.5 billion of offerings in 2017, up from $8.9 billion in 2016, according to Asset-Backed Alert’s ABS Database. This year has seen another $1.2 billion of supply.