The Silver Lining in an Uncertain Market Environment
There is no sugarcoating the facts: 2016 has not been off to an easy start for the lending industry. From the volatility that has affected the global markets over the last quarter to higher investor expectations on purchasing lenders’ assets, the industry has reached an inflection point and is facing challenging market conditions. This is when great companies are made.
From the beginning, we have had a great respect for and focus on upfront underwriting and ongoing risk management. We understand that building a financial platform for the long term is about measured growth and consistency. In 5–10 years with an economic cycle likely behind us, we think it’s important to be able to point to our loans and show investors that our “paper” performed just as well, if not better, than anybody else’s in the space. At CommonBond, we talk a lot about “earning the right to grow” — scaling the right way for our consumers and originating pristine assets for our investors — and that is primarily how we expect to do it long term.
Earning the right to grow also means developing a rarified brand in finance among investors and successfully going through the necessary rites of passage to do it. One of those rites of passage in our industry — and one that only a handful of us out of the 300+ FinTech lenders in the U.S. have accomplished — is to issue a securitization. This means putting your loans, your platform and your team on display for rating agencies and bankers and investors to scrutinize every which way to Tuesday. It’s one of the best ways to prove sophistication early. It’s a forcing mechanism to build enterprise-level systems worthy of public companies.
Today, we announced the completion of our second securitization of student loans. The deal was an investment-grade rated transaction, over $150 million in size, and co-led by Barclays and Goldman Sachs. Purchasers of the assets were top institutional investors that included insurance companies, banks, credit funds and asset managers. The deal was oversubscribed.
CommonBond has experienced these outcomes amid the challenges of the current market environment for a few reasons:
- Our pristine portfolio: Throughout our 2.5-year history, we have yet to see a single default. This is rare in our industry for a platform at our stage and scale. It’s a direct result of our sophisticated upfront underwriting and ongoing risk management. We use data and technology to get to know our customers, which enables us to tailor an appropriate rate for those we choose to lend to.
- Our disciplined growth: From day 1, we have placed a strong emphasis on growing responsibly. Across people, loan originations, and products. Now, more than ever, I believe that responsible management teams must prioritize the disciplined growth of a quality portfolio versus “originations at all costs.” Disciplined growth is a characteristic that all (successful) earlier stage companies, across industries, must practice. The stakes are even higher in lending industries given the complexity involved in managing both lending and equity capital.
It’s for these reasons, I believe, that we’ve seen a high degree of inbound investor interest at a time when some debt investors are getting more skittish. It’s something we value and will continue to manage to in times both certain and otherwise.
