Last month we learned about the new $30 million investment received by Upgrade from the Portuguese digital bank Banco BNI Europa. On the face of it this was not that remarkable, Upgrade has attracted many investors and BNI Europa has demonstrated their commitment to the marketplace lending space with many other investments.
But what caught my attention was the way this deal was structured. In reality BNI Europa did not actually purchase Upgrade loans, they invested in a privately placed bond that was backed by Upgrade loans. This bond was issued by Fintex Capital.
I reached out to Robert Stafler, the CEO and Co-founder of Fintex Capital based in London, to learn more about this transaction. Fintex was founded in 2015 and Robert has been a frequent speaker at our LendIt Europe events so I have gotten to know him and his company reasonably well over the last few years. He agreed to chat with me to explain how their investment structure works.
Fintex Capital SA is the company’s Luxembourg-based proprietary securitization vehicle. They create a bespoke program for every client, one tailored to the specific needs of the client. This is a pass-through securitization meaning there is no fixed coupon on the bond, the bond simply passes through the economics of the underlying assets less a management fee for Fintex.
The Fintex bond is capital markets friendly as it is cleared through Euroclear and has an ISIN number (XS1772189442) so details can be viewed on a Bloomberg terminal. The bond can be increased to as much as $200 million if needed through tap issuance. The loans can be sold directly into the bond which results in no accrued interest leakage unlike the pass-through or cert deals done in the US. Even though this deal just became public in July Fintex has been buying loans on Upgrade’s platform since April and had fully deployed the $30 million by mid-June.
When I asked Robert about exactly what value Fintex provides for investors he had this to say:
The Fintex advantage is to add value to investors in alternative lending through a unique combination of proprietary technology, turnkey bond issuance, tight cost control and a strong credit team. We do all this with attractively low costs since our ambition is to manage, over the next few years, USD 1 billion in alternative credit. We have now reached USD 150 million in AUM already and have ready investment products in every major currency: USD, EUR and GBP. For our customers – asset managers, banks, insurance companies – we run managed accounts, giving each of them more influence than they would have had as a limited partner in a fund.
Fintex has built their own technology that helps them analyse and visualize the underlying portfolio of loans. They perform deep diligence on the platforms they work with before deciding to invest and continue monitoring the portfolio closely. They have created a product dedicated to UK and European investors interested in US consumer loans. For any new client who comes on board they can be up and running very quickly, within just a couple of weeks. Fintex is dedicated to bringing additional UK/European investors to the Upgrade platform via the structure and is working with a number of counterparties in Europe who are exploring Upgrade.
Upgrade has been tight lipped about who is investing in their loans. We do know that they had crossed $100 million in monthly originations by April of this year, CEO Renaud Laplanche shared that during his LendIt Fintech USA 2018 keynote. But we have not had much insight into who is investing in these loans. The Banco BNI Europa deal is one of the first publicly disclosed deals of an investment in Upgrade loans. I reached out to Renaud for an official comment on this investment and this is what he had to say:
We are thrilled to partner with Fintex Capital and BNI Europa, both innovators with top-notch teams. This investment marks another milestone in the diversification of our capital sources and creates a repeatable and flexible way for UK/European investors to participate on the Upgrade platform.
Banco BNI Europa, on the other hand, has been quite public in many of their investments. The digital bank has been amassing a portfolio of marketplace lending assets over the last couple of years. Prior to this deal we have learned of their investments in UK invoice finance platform MarketInvoice, German small business lender Creditshelf, pan-European consumer lender Crosslend, Irish small business lender Linked Finance just to name a few. Clearly, Banco BNI Europa has built quite a reputation as a significant investor across marketplace lending platforms.
Here is what Pedro Pinto Coelho, Executive Chairman of Banco BNI Europa had to say:
We are pleased to increase our exposure to the US consumer lending market and particularly delighted to benefit from the expertise of Upgrade’s experienced team lead by Renaud Laplanche. We consider Upgrade to be different from other consumer loan offerings in light of its focus on borrower free cashflow as a key metric. We’re also supportive of Upgrade’s credit education initiative, which provides much needed advice and assistance to US borrowers as to how they can improve their credit health.
Outside of China the largest markets for marketplace lending are the USA and Europe. A number of funds have been investing in both geographies for years. But it is good to see an innovative program like the one Fintex Capital has created to enable a more custom approach to investing in loans between the two regions.
