Feb 23 DriverUp, a U.S. online marketplace that allows hedge funds to invest directly in car loans, launched on Monday with a $50 million investment from venture capital firms. Executives at DriverUp told Reuters that the company is expecting to sell at least $50 million of auto loans to funds, wealthy individuals and other investors through its website this year. DriverUp's parent, Dallas, Texas-based Sierra Auto Finance, will make all the loans on the platform at first, but Chief Executive Sam Ellis said that over time other lenders may sell their loans via the site. Before starting Sierra in 2012, Ellis founded Exeter Finance Corp, a subprime lender acquired by Blackstone Group LP in 2011.
Banks and investors have poured money in auto loans in recent years after losses on mortgages and credit cards during the financial crisis made many lenders skittish about expanding in those areas. Consumers took out $105 billion in auto loans in the third quarter, the most in any quarter since 2005, according to the Federal Reserve Bank of New York's quarterly report on household debt and credit.
Websites that allow investors to fund consumer loans, including sites like LendingClub Corp, extended $9 billion of loans in 2014, nearly triple the volume of loans made in 2013, according to estimates from credit-rating firm DBRS. Unlike many other sites, the loans that DriverUp is making and selling will be backed by borrowers' collateral.
The auto finance market's fast growth has been accompanied by increased scrutiny from regulators and law enforcement officials, especially around whether investors in bonds backed by auto loans received adequate disclosure of their underlying quality. Ellis said that although regulators pose the greatest risk to DriverUp's business model, loans on the platform will offer much more information to investors than bonds backed by the loans, including a verified credit analysis for each individual borrower.
Lenders are expected to submit their credit approved commitments to Russian state-owned bank VTB's refinancing loan by the end of next week, providing a positive sign that the syndicated loan market is still accessible for some Russian borrowers, banking sources said. The international loan market has in effect been on hold in Russia since the annexation of Crimea in March, but at the beginning of June, VTB decided to ask banks to provide a one-year facility of between $1.0 billion-$1.5 billion to refinance a $3.13 billion three-year facility that is scheduled to mature on July 7. Those lenders have since been evaluating how much appetite they have for the deal with mixed results."VTB has asked for commitments of $150 million from each bank but it may not pan out like that," a banker said. "It could well end up as a mixed group on different tickets."Overall appetite has been positive, and bankers close to the deal expect VTB to raise as much as $1.5 billion altogether. The deal is a one-year facility rather the usual three-year maturity to try and assuage lenders' fears after EU and US sanctions were issued against Russia."It shouldn't be a challenge to get the number VTB has requested," said a second banker. Another measure introduced by the borrower to help facilitate the credit approval process saw VTB give permission to banks to discuss the deal with each other prior to approaching their credit committees for final approvals.
"There will be a telephone call between the banks, with the borrower's permission, before we approach credit committees for final approval," said the second banker. "This will give us an idea of what other banks are doing so we can build an informed liquidity profile of the deal and appease the committees with the knowledge that you are not alone in this deal."Nevertheless, some bankers remain sceptical around the feasibility of US banks' ability to join a Russian deal at this stage."US banks will find it very hard to get credit approval for this deal," said the first banker. "It is still too early for US banks to move back into the Russian market, especially for an entity which is state backed. I wouldn't be surprised if we see some Japanese banks in there though."VTB declined to comment.
DIY LOAN The loan is being self-arranged by VTB, which is expected to give all the participating banks the same bookrunner and mandated lead arranger title, the bankers said.
"My sense is that a technical co-ordinator might be mandated but VTB won't want to give any particular bank the upper hand (in the deal) and risk other banks walking away," the second banker said. Pricing has not increased significantly from the 2011 deal it replaces. The new deal is carries all-in pricing of at 175 basis points (bps), compared to a margin of 130 bps on the longer-dated 2011 loan."I am not surprised by the pricing, there are enough banks interested in the deal to justify it," a third banker said. If ultimately VTB does fail to raise at least $1 billion from banks, it could walk away from the deal."My sense is if VTB can't raise at least $1 billion I think they would prefer not to do anything. It needs to be seen to able to raise a substantial facility otherwise it looks weak," the second banker said. The original July 2011 facility for Russia's second biggest lender was the largest-ever loan for a financial institution in Central and Eastern Europe at the time and refinanced an existing 2008 $1.4 billion loan. The 2011 deal was coordinated by ING and SMBC.