KBRA Assigns Preliminary Ratings to Pagaya AI Debt Selection Trust 2020-3
This transaction is the first publicly rated securitization for Pagaya Investments US LLC ("Pagaya"). Pagaya is a 100% owned subsidiary of Pagaya Technologies Ltd. which is an Israeli corporation. Pagaya is a technology-based asset manager that uses data analytics and artificial intelligence to review and purchase certain unsecured consumer loans from marketplace lending ("MPL") platforms and automobile loans from some subprime auto loan originators.
PAID 2020-3 has initial credit enhancement levels of 42.25% for the Class A Notes, 27.75% for the Class B Notes and 13.00% for the Class C Notes. Credit enhancement consists of excess spread, overcollateralization, subordination (in the case of the Class A and B Notes) and a reserve account funded at closing.
PAID 2020-3 has no loans funded at closing and the notes are initially supported by amounts deposited in the prefunding account. During the 150 day prefunding period, the amounts on deposit in the prefunding account will be used to purchase unsecured consumer loans from the following MPL platforms: Avant, LLC; LendingClub Corporation; Marlette Funding Inc.; Prosper Funding LLC; and Upgrade, Inc (collectively, the "Platform Sellers"). Each Platform Seller will act as servicer for the loans originated through their platform.
The financial impact of COVID-19 has resulted in an economic slowdown and high unemployment, which can adversely impact the performance of the transaction and consumer loans in general. In considering this risk, KBRA applied additional stress scenarios by increasing its expected base case gross charge-off assumptions for this transaction. The assumption increase was derived from KBRA's analysis of the relationship between the historical unemployment rate and annualized gross loss rates through the 2008-2009 financial crisis for different types of lending products.
KBRA applied its Global Consumer Loan ABS Rating Methodology and Global Structured Finance Counterparty Methodology as part of its analysis of the transaction's underlying collateral pool, the proposed capital structure and Pagaya's historical gross loss data. KBRA has performed operational reviews of Pagaya and each of the Platform Sellers and has conducted surveillance on each platform's recent securitizations, as well as a review of the transaction's legal structure and transaction documents. KBRA reviewed the operative agreementsand legal opinions for the transaction prior to closing.
Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe is registered with ESMA as a CRA.
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