Theorem returns with $421.7 million in unsecured personal loan ABS
Theorem Funding Trust returns with a $421.7 million asset-backed securities (ABS) deal, a deal in which the trust has all but reduced the share of unsecured personal loans with lower credit ratings.
While loans with theorem scores of 60-90 make up the majority of the pool, 56%, the share is considerably smaller than it was in the THRM 2022-1 deal, 82%, according to an analysis by Kroll Bond Rating Agency. Theorem underwrites loans using artificial intelligence and other data inputs to produce scores ranging from 50 to 100, where higher scores indicate higher credit quality loans.
Theorem acquired the personal loans from a range of lending platforms in the market, including Upstart Network, Marlette Funding, LendingClub Bank, National Association, Upgrade and Prosper Funding.
At the deadline of the agreement, the proportion of its guarantee was 37% of Upstart loans, then 23.2%, 21.3%, 14.6% and 7.1% of Marlette, LendingClub, Upgrade loans and Prosper, respectively. Each of the platforms that sell the loans to Theorem will service the loans issued on its platform, according to the rating agency.
In another feature of the 56,993 loan guarantee, so-called personalized loans accounted for approximately 45% of the THRM 2022-2 guarantee balance. Since Theorem began purchasing Custom Loans from Prosper in January 2019, Custom Loans have accounted for 40% of Theorem’s monthly purchase volume.
The Trust will issue Notes of two classes, the $373.5 million Class A Notes, rated “A-”; and the $48.2 million Class B Notes, rated “BBB”.
Theorem Funding Trust, 2022-2, has notes that are overcollateralized – 30% initially, which will reach a target of 34.0% of the current pool balance, subject to a floor of 2.0% of the balance initial of the pool. The agreement also has a subordination, a cash reserve account equal to 0.50% of the initial pool balance and a margin excess of approximately 11.23%. The deal also benefits from a curable damping trigger.
Using subordination, THRM 2022-2, Class A Notes will receive principal payments before all subordinate Notes, and once fully repaid, Class B Notes will receive principal payments until that they be reimbursed.
On average, the loans have a balance of $10,570 and, on a weighted average (WA) basis, the loans have a coupon of 18.9%; a FICO score of 686; an initial term of 53 months and a remaining term of 48 months.
The Notes are expected to make their final payments on December 15, 2028.