KBRA assigns preliminary ratings to three classes of notes issued by Pagaya AI Debt Trust 2022-5 (“PAID 2022-5”), a consumer loan ABS transaction.
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Pagaya Structured Products LLC is a 100% owned subsidiary of Pagaya US Holding Company LLC (formerly known as Pagaya Investments US LLC), which is a 100% owned subsidiary of Pagaya Technologies Ltd. (“Pagaya Technologies”), an Israeli corporation. Pagaya Technologies is a financial technology company in the lending marketplace that uses machine learning, big data analytics, and AI-driven credit and analysis technology. This transaction is the third publicly rated securitization sponsored by Pagaya Structured Products LLC (collectively with its affiliates, “Pagaya” or the “Company”). Previously, Pagaya US Holding Company LLC served as sponsor for 16 securitizations of unsecured consumer assets. Overall, Pagaya Structured Products LLC and Pagaya US Holding Company LLC have completed 30 securitizations for over $12 billion since 2018 with 21 collateralized by unsecured consumer assets, seven securitizations collateralized by auto loan receivables, and two securitizations collateralized by a loan backed by single family rental properties.
PAID 2022-5 has initial credit enhancement levels of 35.85% for the Class A notes and 23.00% for the Class B notes. Credit enhancement is comprised of overcollateralization, subordination of junior note classes, a cash reserve account, and excess spread.
PAID 2022-5 will issue two classes of notes totaling to $387.5 million. The proceeds from the sale of the notes and collections will be used to fund: (i) the prefunding account; (ii) the reserve account; and (iii) pay certain transaction expenses. PAID 2022-5 is a fully prefunded transaction where there is no collateral funded at closing and the notes are initially supported by amounts deposited in the prefunding account. During the six-month prefunding period, the amounts on deposit in the prefunding account will be used to purchase unsecured consumer l****, subject to eligibility criteria and concentration limits, from the following MPL platforms: LendingClub Bank, National Association (“LendingClub”); MF Consumer Loan Trust (“Marlette”); Prosper Funding LLC (“Prosper”); Avant, LLC (“Avant”); and Upgrade, Inc. (“Upgrade”); SoFi Lending Corp (“SoFi”), Cross River Bank (collectively, the “Platform Sellers”). L**** originated on the SoFi Platform will be sold directly to the depositor by Cross River Bank.
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In addition, Pagaya may direct the Depositor to purchase l**** originated through a Platform Seller but which are held by its originating bank, including LendingClub and Cross River Bank (“CRB”). Each Platform Seller or an affiliate of each Platform Seller will act as servicer for the l**** originated through its platform. L**** originated by an Originating Bank are serviced by the Originating Bank, the Platform Seller, or an affiliate of the Platform Seller. L**** directed for purchase by Pagaya are originated by or sold through the Platform Sellers with the assistance of proprietary credit technology provided by Pagaya Technologies. This proprietary credit technology is used to assess the credit quality of borrowers or potential borrowers of the Platform Sellers and is based on artificial intelligence and machine learning.
KBRA applied its Consumer Loan ABS Global Rating Methodology, as well as its Global Structured Finance Counterparty Methodology and ESG Global Rating Methodology as part of its analysis of the transaction’s proposed capital structure and Pagaya’s historical gross loss data. KBRA considered its operational reviews of Pagaya and each of the Platform Sellers, as well as periodic update calls with the Company and Platform Sellers. KBRA has conducted surveillance on each platform’s recent securitizations. Operative agreements and legal opinions will be reviewed prior to closing.
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