Prosper Marketplace Inc. has met with investors including Fortress Investment Group about potential capital injections, according to a person with knowledge of the matter.
Online lenders have found it harder to attract investors to buy loans in recent months, a difficulty that only increased last week after Prosper's competitor LendingClub Corp.said it had discovered problems with its internal controls, and that its chief executive officer and founder was stepping down. LendingClub received a grand jury subpoena from the U.S. Department of Justice after the announcement, the company said in a filing on Monday.
Even before LendingClub's announcement, Prosper planned to slash its workforce 28 percent to cut costs, a person briefed on the matter said in early May. Its CEO Aaron Vermut is foregoing his salary this year.
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The abrupt resignation of the firm's founder and CEO, under a cloud, seems likely to fan investors' growing fears about the marketplace lending sector. It could also hasten regulatory scrutiny.
May 9 -
Some buyers are hanging in there, but as OnDeck Capital's disappointing first-quarter results show, investors who acquire and securitize marketplace loans are heading for hills. Among the reasons: fear of defaults, unfavorable pricing and shrinking loan yields.
May 3
Prosper's conversations with Fortress and others are preliminary, and may not lead to a deal, said the person who asked not to be identified because the matter is not public. Sarah Cain, a Prosper spokeswoman, declined to comment via e-mail. Gordon Runte, a Fortress spokesman, declined to comment.
LendingClub's troubles have weighed on the entire industry, said Jason Merrill, an analyst at Penn Mutual Asset Management. Investors are increasingly concerned that they are not getting paid enough interest to compensate them for the risk in online loans. Prosper loans that were packaged into bonds by Citigroup Inc. and sold to investors fell by 4 cents on the dollar to 93 cents over the last week, according to bond data firm Empirasign Strategies.
Jefferies Group and Goldman Sachs Group Inc. suspended plans to buy loans from LendingClub and package them into bonds, people with knowledge of the situation saidlast week. A consortium of 200 community banks said it may also hold off on purchasing LendingClub loans.
