Global education fintech Prodigy Finance achieves world first with its oversubscribed, inaugural AA-rated social bond issuance
Prodigy’s issuance – the first to be made under the company’s Social Bond Framework – sees huge demand as it introduces major public market investors and asset managers to the firm for the first time
New Delhi: Prodigy Finance – the fintech pioneer of cross-border lending for postgraduate international students – is doubling down on its commitment to social impact and borderless education with the announcement of three significant company milestones and industry firsts.
Primarily, Prodigy Finance has issued a first-of-its-kind, investment-grade 1 Student Loan Asset-Backed Securitisation (SL ABS). The ABS is backed by a portfolio of $304m of loans Prodigy Finance has awarded postgraduate students attending the world’s top-ranked universities and business schools since 2017.
The heavily oversubscribed senior tranche of $227m notes – of the $288m total issuance – have been given Class A ratings of Aa3 by Moody’s Investor Services, and A+ by Kroll Bond Rating Agency, and were priced at LIBOR +125bp from the day of launch. A further three rated debt tranches were all pre-placed with a major global asset manager.
This $288m issuance and inaugural social bond is the first to be made under Prodigy’s pioneering Social Bond Framework, marking a double debut in the fixed income market for the lender. This Framework, which underpins Prodigy Finance’s unique focus on access to education and socioeconomic advancement and empowerment, has been confirmed as aligning with ICMA Social Bond Principles 2021, as well as the UN Sustainable Development Goals. Namely goal 4, that of Quality Education, and goal 10, that of Reduced Inequalities. An alignment, and achievement, that was confirmed via Second Party Opinion from independent third-party ISS and which is becoming an increasingly important and pertinent strategy for investors globally.
The transaction also introduces major public market investors and asset managers to Prodigy Finance for the first time, as the startup looks to accelerate its expansion coming out of the pandemic. In particular, the deal recognizes Prodigy’s global enforcement framework for unsecured consumer lending and the company’s international payments and servicing platform.
These milestone announcements follow a 50% year-on-year increase in loan applications made to Prodigy Finance from prospective students pursuing graduate studies including MBA and Engineering masters. The company has also seen portfolio performance improve significantly as its highly-qualified postgraduate borrowers benefit from a resurgence in hiring in business, tech and professional sectors.
Prodigy Finance’s ability to issue these social bonds demonstrates how the higher education market is slowly returning to normal and the company’s confidence in the future of international education.
To meet IG rating agency criteria, this static pool structure has 25% subordination for the Class A and provides 1.7% of cash reserves; OC targets build credit enhancement and allows for modified pro rata payment. The pool is expected to have a base case CPR of 29% and the pool amortises over 4-5 years giving a fast-paying cash flow to investors. The notes and residual have been placed to a broad range of US-based asset managers, institutions and credit funds.
Dr Judith Rodin, Chair of Prodigy Finance, said: “In line with our social impact commitment, we are excited that these social bonds give investors – who are increasingly embracing a strategy that goes beyond purely financial returns – the opportunity to contribute to achieving the UN SDGs.”
Cameron Stevens, CEO of Prodigy Finance, said: “Our borrowers are typically underserved by traditional lenders who require collateral, a co-signer or a credit history in the country of study. Prodigy Finance’s ability to originate loans based on a borrower’s future earnings potential allows for these students to have access to financing and ultimately access education at the highest ranked schools in the world.”
Neha Sethi, Head of Capital Markets, added: “This is a big milestone for Prodigy and we are very proud of what we have achieved. A successful debut rating, access to the capital markets and compliance with the ICMA Social Bond Principles are vital for the next stage of growth and for making postgraduate education accessible for our international borrowers.”
Prodigy Finance has recently partnered with six international colleges, offering a global portfolio of 800 colleges and 1000 post-graduate courses to Indian students. Having already assisted 20,000 students financially across the globe so far, the platform now foresees disbursing loans worth more than $1 billion to over 20,000 deserving Indian students in the next three years.