OnDeck Markets First ABS Since Purchase by Subprime Lender Enova

Online lender OnDeck Capital is planning its first bond sale since it was acquired last year by consumer-credit giant Enova International Inc., an issuer of high-cost installment loans.

The firm plans to sell asset-backed securities in four tranches, according to people with knowledge of the offering. The transaction is one of a handful of debt sales backed by small business loans in recent weeks as the search for capital-markets financing heats up following a rough year for the sector.

“As a result of Covid-19 related economic disruption, unemployment is elevated and may impact revenue of small businesses as consumers and businesses may be less inclined or able to spend,” Kroll Bond Rating Agency analysts wrote in the presale report. “Small businesses struggled throughout the pandemic due to the elevated unemployment levels, complete lockdowns, capacity limits, and social distancing measures.”

The deal is one of several making the rounds. Harvest Small Business Finance started selling an offering backed by unguaranteed loans on Thursday while lender Credibly priced its inaugural transaction on April 1.

OnDeck Markets First ABS Since Purchase by Subprime Lender Enova

Enova has historically focused on non-prime consumer lending and to a lesser degree small business lending, according to a presale report last week from Kroll. That can bring some risks as rating firms say company integrations can be difficult for continuity. However, while certain key management left OnDeck subsequent to the merger there are enough experienced personnel left to support operational and servicing issues should they arise, according to the credit rater.

Previous OnDeck deals, as well as ABS from other marketplace lenders, have run into problems before due to bad loans, although they were eventually paid in full. Beginning in May 2020, “multiple trigger events were breached” on OnDeck’s previous transactions from 2018 and 2019, Kroll said. That means cash was diverted from low-ranked bondholders to protect investors with higher priority.

Investors will be keeping their eyes on whether the pricing may change compared to the company’s previous ABS securities. The AAA slice of OnDeck’s previous deal from 2019 priced with a yield of about 2.66%, according to data compiled by Bloomberg.

This would be OnDeck’s first ABS since November 2019.

“We participate in the (marketplace-lending ABS) space,” and will likely consider the deal, said Jason Callan, head of structured assets at Columbia Threadneedle Investments. “The price talk on the deal looks reasonable, and not too punitive.”

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