Pagaya AI Debt Trust, 2022-5, is preparing to issue $387.5 million in asset-backed securities, to fund a portfolio of unsecured consumer loans, plus a reserve account and other transaction fees.

The sponsor, Pagaya Structured Products, moved to purchase underwritten loans with stricter underwriting standards, especially among riskier borrower segments, in the fall of 2021, according to a presale report from bond rating agency Kroll. In other changes, the rating agency increased its recovery assumption to 6.25% for the transaction, called PAID 2022-5, compared to 5.00% in the PAID 2022-3 deal.

PAID 2022-5 has an initial overcollateralization level of 22.50% and a target O/C of 36.25%, according to KBRA.

Pagaya AI will purchase the loans for the trust from a variety of marketplace lending platforms, including LendingClub Bank, MF Consumer Loan Trust and Prosper Funding, SoFi Lending and Upgrade, according to KBRA.

KBRA notes that PAID, 2022-5 will reimburse noteholders following a sequential payment structure, where those holding the Class A notes will receive principal payments until they are fully repaid, and after that, the Class A notes class B will receive principal payments until they are repaid. paid in full, the rating agency said.

Otherwise, PAID 2022-5 benefits from various forms of credit enhancement, including overcollateralization, subordination of junior note classes, a cash reserve account and excess margin, KBRA said.

The PAID 2022-5 reserve account will equal $18.65 million at closing, or about 3.73% of the prefunded fund balance. The excess gross margin, before losses, is around 10.66%.

In another structural feature, class A and B notes can be exchanged for class AB notes, and vice versa, the KBRA said.

In addition to unsecured consumer loans, Pagaya Technologies also finances loans in the areas of auto loans and single-family rental properties, using machine learning, big data analytics, and AI-powered credit and analytics technology. Since 2018, Pagaya has completed 30 securitizations for more than $12 billion, although the vast majority of the deals, 21, have been secured by unsecured consumer loans.

KBRA expects to assign ‘A-‘ ratings to the $323.2 million Class A notes; and ‘BBB-‘ at $64.2 million, class B notes, KBRA said. All notes have a legal final maturity date of June 17, 2030.