MidCap Financial, a subsidiary of Apollo Global Management, has agreed to buy up to $1 billion in consolidated student loans originated from online platform LendKey. The final amount will depend on how well the underlying assets perform and market conditions, a source close to the situation said.
The financing is the largest ever institutional financing commitment to an online lending platform for student loan refinancing, LendKey said in a statement.
LendKey historically originates loans primarily for around 300 credit unions and other local banks. LendKey facilitates and services the loans, which differentiates it from other US-based peer-to-peer lenders like Prosper or Lending Club, where investors can buy the assets. Two of the largest credit union lenders behind LendKey are working with Apollo, which will ultimately finance loans originated by those credit unions, PDI understands.
The initial purchase will be made by MidCap, a permanent capital vehicle, and those loans will be syndicated to other Apollo funds over time. Apollo will evaluate securitisation as a possible exit alternative as they ramp the pool but there is no explicit plan in place at present to effect a securitisation, PDI understands.
Apollo declined to comment beyond the statement.
LendKey has originated around $750 million in loans so far. Both LendKey and its lenders will be able to expand student loan refinancing programmes and provide further flexibility to borrowers with the MidCap commitment.
The financing will allow investment funds managed by Apollo to participate in more loans and opens up potential for LendKey to branch into other consumer loans. “We believe the financing commitment from MidCap will provide a much needed set of expanded opportunities for lenders and borrowers across the fast-growing student loan market,” James Zelter, managing partner and chief investment officer of Apollo Credit, said in a statement.
“MidCap, along with the investment funds Apollo manages, are an ideal finance provider for LendKey,” Vince Passione, chief executive officer LendKey, said. “This commitment serves as a testament to LendKey’s success in building a valuable student loan portfolio for our current customers and a validation of the ability of online lending platforms to directly originate high quality loans,” he added.
The $100 billion US student loan market is in need of additional refinancing options, LendKey said. Since 1999, student debt has increased more than 500 percent and the average student loan is at an all-time high of $33,000 per student with interest rates at more than seven percent.
Zelter commented in the statement: “As credit unions and other financial institutions navigate the changing interest rate environment and contemplate potential Risk Based Capital (RBC) measurements, we believe LendKey is uniquely positioned to provide its clients with a facility to sell student consolidation loans and, in the future, other consumer loans. In addition, we believe this commitment is a great example of the inherent strength of Apollo’s relationship with MidCap and our ability to source loans in a variety of attractive industries including student lending.”