UK-based online lender Prodigy Finance on Monday priced the first-ever dollar social bond backed by student loans, adding to an increase in ESG supply in the ABS market this year.
The US$273.87m transaction, Prodigy Finance CM2021-1 LLC, marked the first student loan securitization whose issuer made a formal pledge to ESG principles established by the International Capital Market Association and is verified by a second-party firm. Prodigy's loans meet ESG criteria because they promote social advancement and empowerment by helping students from developing countries such as India and Brazil to enroll in US graduate schools to study business, law and medicine, Kroll said.
The deal featured four classes of floating-rate notes with weighted-average lives ranging from 1.87 years to 2.91 years. Deutsche Bank was the sole bookrunner.
"It had a good reception in the market," a source familiar with the deal said. In addition to its ESG feature, the deal's relatively wide spreads versus other student loan ABS drew strong orders from investors, the source said.
The deal's US$227.58m Class "A" tranche, which carries an weighted-average life of 1.87 years, was overall about five times oversubscribed, according to the source. The paper, which is expected to be rated Aaa3 by Moody's and A+ by Kroll, priced at 125bp over one-month Libor. This compared with an average secondary spread of 105bp on AA/A rated student loan paper, according to Bank of America data.
The subordinate tranches were pre-placed, according to the source. These consisted of a US$22.76m A1/BBB "B" note with a 2.61-year WAL, a US$19.72m A2/BB– "C" note with a 2.73-year WAL and a US$18.21m Ba1/B "D" note with a 2.91-year WAL. The B note priced at one-month Libor plus 250bp, the C note at one-month Libor plus 375bp and the D note at one-month Libor plus 590bp.
More ESG supply
In June, London-based Prodigy adopted a social bond framework that will enable the issuance of social ABS to “ensure inclusive and equitable quality education and promote lifelong learning opportunities for all”. The guideline incorporated United Nations’ "Sustainable Development Goals" and are in line with ICMA social bond principles.
The deal is secured by loans originated to 6,037 borrowers, with an average loan size of US$37,705, and 62.2% of the borrowers who are repaying their loans currently live in the United States, Kroll said in a presale report on the offering.
While ESG supply in the structured finance market remains low compared with other sectors of the bond market, volume has picked up a bit this year. Ten US dollar-denominated ESG ABS deals have raised US$4.18bn year-to-date, compared with five issues totaling US$694m sold during the same period in 2020, according to Refinitiv.
In June, Toyota rolled out its first dollar green auto ABS deal since 2016, the US$1.48bn Toyota Auto Receivables 2021-B Owner Trust.
ESG issues in asset categories emerging outside of auto, solar and PACE have also bolstered supply this year. Prior to the Prodigy's social bond debut, Trinity Industries completed the first-ever green railcar lease securitization, TRP 2021-1, in May. Proceeds from Trinity's green program are intended to improve the energy efficiency of its freight railcars.