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Pagaya intends to raise $387.5 million secured by unsecured consumer loans

The Pagaya AI Debt Trust, 2022-5, is preparing to issue $387.5 million in asset-backed securities to fund a portfolio of unsecured consumer loans, as well as a reserve account and other transaction costs.

The sponsor, Pagaya Structured Products, had switched to acquiring loans underwritten to more stringent underwriting standards – particularly in riskier borrower segments – according to a pre-sale report from the Kroll Bond Rating Agency in the fall of 2021. In other changes, the rating agency increased its recovery assumption to 6.25% for the transaction named PAID 2022-5, compared to 5.00% for the transaction PAID 2022-3.

According to KBRA, PAID 2022-5 has an initial overcollateralization level of 22.50% and a target O/C of 36.25%.

According to KBRA, Pagaya AI will buy the loans for the trust from a number of marketplace lending platforms including LendingClub Bank, MF Consumer Loan Trust and Prosper Funding, SoFi Lending and Upgrade.

KBRA advises that PAID, 2022-5 will repay the Noteholders under a sequential payment structure where those holding the Class A Notes will receive principal payments until fully redeemed and thereafter the Class B Notes Principal payments received until fully paid, the rating agency said.

Otherwise, PAID 2022-5 benefits from multiple forms of credit enhancement, including over-collateralization, subordination of junior note grades, a cash reserve account and an excess spread, KBRA said.

The reserve account of PAID 2022-5 will be $18.65 million at closing, or approximately 3.73% of the pre-funded pool balance. The gross excess spread before losses is approximately 10.66%.

In another structural feature, grades A and B can be swapped for grade AB grades and vice versa, KBRA said.

In addition to unsecured consumer loans, Pagaya Technologies also finances auto loan and single-family home rental loans using machine learning, big data analytics, and AI-driven lending and analytics technology. Since 2018, Pagaya has completed 30 securitisations for more than $12 billion, although the vast majority of transactions, 21, were secured by unsecured consumer loans.

KBRA expects to assign ‘A-‘ ratings to the $323.2 million of Class A Notes; and ‘BBB-‘ to the $64.2 million in Class B, KBRA said. All Notes have a legal final maturity date of June 17, 2030.

Richard Dement

The author Richard Dement