Is BDC Prospect Capital looking to a tie-up with Lending Club?

By Daniel Lanyon on Tuesday 4 October 2016

Alternative Lending

Peer-to-peer and marketplace lending platforms and Business Development Companies (BDCs) have been increasingly mentioned in the same breath, now synergies may be starting to occur.

Prospect Capital, a Business Development Company (BDC) based in New York is in the process of buying Lending Club loans, according to reports.

Prospect Capital, which has a $2.9bn market capitalisation, has previously been a buyer of US platform OnDeck’s loan book. During the year ending June 30, 2016, it purchased $68.8mof small business whole loans from OnDeck.

Now, according to the reports it has entered into an arrangement with Morgan Stanley to bring a $150m book of seasoned Lending Club loans to market.

So far 2016 has been a testing one for the marketplace and p2p lending space. The industry itself has taken a hit from a decline in global economic confidence but also seen a slowing of the bull-run in growth that it has experienced in recent years. Lending Club as the largest and best known platform was also hit by its own series of bad news.

In May of this year, Lending Club's - now former - chief executive officer Renaud Laplanche stepped down amid allegations of impropriety with investment bank Jefferies pulling out of a securitisiton deal due to alledged falsification of loan dates and subsequently the firm's share price plummeted. Insitutional investors also appeared to distant themselves from the platform, the largest in the US for marketplace loans.

In this period Lending Club saw its origination volume decline by nearly 30 per cent compared to Q1 of 2016 although it was still marginally better than the second quarter of 2015.  Loan originations in the second quarter of 2016 were $1.96bn, compared to $1.91bn in the same period last year, an increase of 2 per cent year-over-year. The Lending Club platform has now facilitated loans totalling nearly $21bn since inception.

It reported a loss of $81.4m, or 21 cents per share, for the second quarter of 2016 compared to a loss of $4.1m, or 1 cent per share, a year ago.

Prospect Capital normally invests in private and mezzanine debt as well as private equity and currently has a debt to equity ratio stood at 69.5 per cent. It invests primarily in first-lien and second-lien senior loans and mezzanine debt, which in some cases include an equity component, providing capital to middle-market companies and private equity financial sponsors for re-financings, leveraged buyouts, acquisitions, recapitalisations, later-stage growth investments, and capital expenditures.

It listed on the New York Stock Exchange in 2004 and including its October 2016 distribution, assuming our current share count for upcoming distributions, has distributed $15.12 per share to initial shareholders, exceeding $2.0bn in cumulative distributions to all shareholders

Since its IPO 12 years ago, it has reported net asset value (NAV) per share of $9.62 with a current dividend yield of 12 per cent based on closing stock price of $8.48. Its last distributable income was $96.6m or $0.27 per weighted average share, exceeding dividends by $0.02 per share.

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