A direct link to the capital markets
Instead of building up a portfolio of assets to sell to an institutional investor, CrossLend can enable loan originators to sell their origination as they write each individual loan.
No exposure to interest rates
Interest rate risk is a genuine concern for any originator funding loans via their equity or warehouse facilities. If interest rates increase or if yield curves steepen, the value of the loan portfolio they’re trying to build up will decrease.
Moreover, any warehouse providers could end their agreements with the originator, resulting in an urgent refinancing need which is more expensive than anticipated.
OTD on the other hand, does not require the originator to build up a large book of existing loans prior to any deal being struck. Spreads can be agreed upon in advance, with the investor then bearing the interest rate risk. Riskier interest income can be transformed into more stable fee income.
Favourable capital treatment
CrossLend can facilitate deals either by using the buying and/or selling parties’ own structure or by utilising CrossLend’s efficient pass-through note structure.
CrossLend’s pass-through notes allow you to benefit from favourable capital treatment. You can derecognise the assets, rebooking them as servicing obligations. When an investor requires to have skin-in-the-game, CrossLend’s canny solution allows you to hold significantly less regulatory capital against these assets.
The favourable capital treatment is not just isolated to originators. Booked as one instrument, the notes can be exploded for capital treatment purposes, with the risk weighting of the underlying receivables applied to the note itself.
Borrower relationships are unaffected
Moreover, in our structure the originator remains as the Lender of Record (LOR). There is no legal requirement on the originator’s behalf to notify borrowers of the relationship with the investor (since they remain as LOR and servicer). All the borrower identities are anonymised.
Should the end-investor later sell their notes to another investor or choose to repo them with a bank or central bank, the same protocol still applies as the LOR remains unchanged.
Robust legal structures
Our authorised Luxembourg structure is supervised by the CSSF and owned by a Dutch Stichting. CrossLend notes provide contractual ring fencing and bankruptcy remote compartments of the SPV provide a statutory ring fencing.
CrossLend can even offer white-label SPV solutions to clients seeking more customised solutions or vehicles for loan receivables.
Investor & originator reporting
CrossLend digitally integrates with loan and receivables originators’ data and delivers up-to-date and regular reporting via our Reporting Engine. Reports can be completely bespoke or conform with a number of known standards (e.g. Solvency II reporting).
Many investors and originators often require different types of reports for different teams. The Reporting Engine can also cater for that. Originators do not need to develop potentially risky and possibly manual MS Excel based solutions and investors can even obtain reporting aggregated across all their investments.
Increased origination capacity
Interestingly, both banks and non-banks can benefit from OTD-based business models, albeit for slightly different reasons.
In the case of banks, the strongest advantage relates to their usual requirement to hold capital against assets. Since CrossLend enables banks to derecognise their assets, those banks are able to earn a servicing fee on loans without the need to hold any capital against them, which in turn also frees them to underwrite a greater number of profitable lending activities.
Non-banks on the other hand, mainly fund loans through shareholder funding and/or warehouse facilities. The latter in particular are not only potentially very expensive and a slow path to securitisation or direct sale of the portfolio, but also often fail to bring additional investment on board – instead simply providing the initial funders with an exit. CrossLend’s solution helps fund future origination and therefore more origination.