Correspondence
April 13, 2011
Via electronic mail and U.S. Mail
Chris Windsor
Division of Corporation Finance
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-7010
|
|
|
Re: |
|
LendingClub Corporation, Post-Effective Amendment No. 9 to Registration Statement on
Form S-1 |
File No. 333-151827
Dear Mr. Windsor:
On behalf of LendingClub Corporation, a Delaware corporation (Lending Club or Company), we are
providing the following responses to the comment letter dated November 24, 2010 from the staff (the
Staff) of the U.S. Securities and Exchange Commission (the Commission) regarding Lending Clubs
Post-Effective Amendment No. 9 to its Registration Statement on Form S-1 (Amendment No. 9), which
was subsequently withdrawn by the Company. The responses set forth below are numbered to
correspond to the numbered comments in the Staffs comment letter, which have been reproduced here
for ease of reference.
Post-Effective Amendment No. 9 to Registration Statement on Form S-1, filed October 26,
2010
General
|
1. |
|
The manner in which the portfolio plans are marketed and operated raise the question as
to whether the plans are a separate security and, if so, whether they are being offered and
sold in compliance with Section 5. |
|
|
|
Accordingly, provide us with your plan to address the issues with the manner in which
LendingClub structures, markets and presents the portfolio plans on your website.
Alternatively, provide an in-depth factual and legal analysis supporting your conclusion
that the portfolio plans do not represent the unregistered offer and sale of securities,
and that the plans meet the requirements of the Securities Act and its regulations in
making offers for the underlying Notes. |
|
|
|
Following conversations with the Staff, the Company respectfully proposes the following
changes to its portfolio builder functionality to alleviate the concern that the output of
the portfolio plan tool creates a separate security that must be registered under the
Securities Act. |
|
|
|
The changes that the Company proposes are as follows: |
|
(i) |
|
removal of the buttons labeled Option 1, Option 2, and
Option 3 |
|
(ii) |
|
addition of the following top five (5) filters used by
investors |
|
1. |
|
Interest Rate/Grade present in 90% of
investor filters |
|
2. |
|
Term (36 60 month) present in 79% of
investor filters |
|
3. |
|
Exclude Loans already invested in present in
65% of investor filters |
|
4. |
|
Credit Score present in 53% of investor
filters |
|
5. |
|
Delinquencies (Last 2 yrs) present in 45% of
investor filters |
|
(iii) |
|
inclusion of a target interest rate slider bar which will
initially be in the off position (i.e. it does not create any filter and
shows the entire inventory) and which must be turned on to be used by the
investor. |
|
(iv) |
|
A hyperlink to the right of the top five filters that would
expose all other existing search filters to allow the investor to include
additional filtering terms. |
Prior to the creation of an investor created sub-listing of the Companys possible
inventory, each of the above filters must be manipulated by the investor in order to move
onto to the next step in the process flow.
Once all the filter terms have been selected by the investor, they would be run though the
standard Markowitz algorithm employed by the Company to arrive at a subset of the
platforms entire inventory that match the investors search criteria. This subset may be
further manipulated by the investor to arrive at final sub-inventory of notes of which some,
all or none may be purchased by the investor.
If the Companys current inventory is insufficient to meet the request of the investor, they
will be informed of that fact and given the opportunity to revise their search criteria.
The Company believes that with the proposed redesign requiring a significant degree of
investor interaction in arriving at a final output that:
|
(i) |
|
under the existing line of No-Action letters, including in
Investex Investment Exchange Inc., SEC No-Action Letter (Apr. 9, 1990) and
Media General Financial Services, Inc., SEC No-Action Letter (July 20, 1992)
that the Company would not be providing investment advice under the Investment
Advisor Act of 1940 (...information is not organized or presented in a manner
that recommends or suggests the purchase or sale of securities where the
presentation of information on the listing services screen depended on search
criteria chosen by the end user (emphasis added)); and |
|
(ii) |
|
this output is functionally equivalent to any standard search
feature for inventory and as such does not create a separate security that must
be registered (or exempt from registration) under the Securities Act of 1933. |
The Company has provided supplementally the wireframes for these proposed changes. To the
extent the Staff is satisfied with the proposed changes, the Company could have the revised
system in place within 60 days.
2
|
2. |
|
Provide us with a detailed description of how the PRIME account operates, including
copies of all screenshots, written materials, agreements provided to investors and scripts
or other instructions given to LendingClub employees who service these accounts. |
|
|
|
|
As the Company previously informed the Staff, the Company offers its investors the
opportunity to open a PRIME account with a minimum of $5,000. A PRIME account allows an
investor ...greater access to our Investor Services team and provides the investor
assistance in ...administering [their] Lending Club account. |
|
|
|
|
Each PRIME account investor: |
|
(i) |
|
is provided a specific investor services representative who is
directly available to the investor (via phone, fax or email) to help set up the
account, answer any questions regarding the Companys service or the investors
account, including the re-titling of accounts (from individual to trust etc)
opening new accounts, adding a beneficiary to an account, etc; |
|
(ii) |
|
has increased direct contact with their investor services
representative during the month as the representative checks in with the
investor to see if the investor has any questions or concerns regarding the
service, and |
|
(iii) |
|
may submit orders for member payment dependent notes to their
investor services representative who will then, to the extent available on the
platform, execute the order as specifically directed by the investor. At no
time does the representative exercise any discretion and the representative
merely performs an administrative duty (i.e. inputting data) as directed by the
investor |
|
|
|
The Company respectfully informs the Staff that there are no areas on the Companys
website that are exclusive to PRIME accounts and the Company has supplementally provided
to the Staff those portions of its website that that mention the PRIME account.
Moreover, there are no additional written materials other than the agreement provided to
each PRIME investor, which has been supplementally provided to the Staff. Each PRIME
investor executes the same agreements that all other investors execute when signing up on
the Companys platform, albeit through a simplified format of the PRIME Agreement. This
form of agreement also provides the account representative with information about an
investors investment goals which is used as a safety, or cross, check mechanism for
investor directions that are outside of the stated parameters. |
|
|
|
The instructions given to each account executive are: |
|
(i) |
|
they are not allowed to provide any advice (tax, financial
planning, investment etc) to the investor in any manner. |
|
(ii) |
|
they are to administer the account as specifically directed by
the investor and are not to exercise any discretion. |
|
(iii) |
|
all changes to an account must go through senior management
for approval. |
3
Only a limited number of account executives are authorized to interact with PRIME
accounts.
|
3. |
|
Provide the staff with a detailed analysis supporting how you have determined that the
steps required in order for the secured conditions would result in LendingClub having a
perfected security interest in any physical asset under the laws of the states where you
intend to offer this product. Also, please provide the staff with your analysis supporting
referring to the notes with secured conditions as secured notes. |
|
|
|
The Company has currently withdrawn the concept of a secured product and as such believes
that the above comment is no longer applicable. |
|
4. |
|
Provide us with a detailed description regarding the information that will be provided
in the prospectus, and on the loan listing on your website, for loans with secured
conditions underlying the listed notes. |
|
|
|
The Company has currently withdrawn the concept of a secured product and as such believes
that the above comment is no longer applicable. |
|
5. |
|
Provide us with your detailed legal analysis explaining how you determined that the
information you propose to provide the investors in your notes represents all material
information required by the 1933 Act in order to permit the investors to make informed
investment decisions regarding those notes. |
|
|
|
The Company has currently withdrawn the concept of a secured product and as such believes
that the above comment is no longer applicable. |
|
6. |
|
Please tell us regarding any contracts or agreements that LendingClub has entered into
to handle the repossession of vehicles under your secured conditions. If you have not
begun contracting for these services, please make revision to the document throughout. |
|
|
|
The Company has currently withdrawn the concept of a secured product and as such believes
that the above comment is no longer applicable. |
|
7. |
|
Please tell us regarding any contractual obligation that LendingClub has to the note
holder to pursue collection or repossession for any collateral provided under the secured
condition program. |
|
|
|
The Company has currently withdrawn the concept of a secured product and as such believes
that the above comment is no longer applicable. |
|
8. |
|
Please provide the staff with the factual basis supporting the assumed default rates
referenced in your loan pricing information beginning on page 47. In particular, please
provide the staff with data regarding actual default rates, by month and loan grade, since
you commenced registered sales. |
|
|
|
The assumed default rates are annualized rates based on industry-wide FICO performance
data collected by TransUnion, a consumer reporting agency. The Company provides this
default rate information with respect to each sub-grade, based on the average FICO score
by sub-grade, to serve as an estimate of future defaults. |
|
|
|
The Company respectfully informs the Staff that the Company has been providing actual
default data as of the end of each quarter by loan sub-grade in all of its filings on form
10-K, 10-Q and any post-effective amendment. Current default information can be found on
page 57 (for all loans that meet our current credit policy for the period from May 2007 to
December 31, 2010) and page 62 (for all loans for the period from May 2007 to December 31,
2010), respectively, in the Companys Registration Statement dated January 7, 2010. The
requested monthly default data has been provided supplementally to the Staff. |
4
|
9. |
|
Our colleagues in the Division of Investment Management have asked us to remind you
that they are considering your response to their comments on your need to comply with the
Investment Company and Investment Advisor Acts of 1940. |
|
|
|
The Company believes that the changes set forth above to the portfolio builder tool should
resolve the issues raised in prior communications with Division of Investment Management. |
|
10. |
|
Please provide the financial statements in accordance with Rule 8-08 of Regulation
S-X.2. Please provide an updated consent from your independent accountants in your next
post-effective amendment. |
|
|
|
The Company has provided an updated accountants consent in its most recent filing. |
Prospectus Summary, page 1
|
11. |
|
Revise your description of the secured conditions in this section and in the
Questions and Answers section that follows to clarify that the requirement that the loan to
value of no more than 120% means that the value of any assets that are included under this
program could be worth substantially less than the value of the note. Make conforming
changes to your revised disclosure in your Risk Factors section. |
|
|
|
The Company has currently withdrawn the concept of a secured product and as such believes
that the above comment is no longer applicable. |
|
12. |
|
Please revise this section to include a separate sub-heading that summarizes the key
points of the Secured Conditions. We may have additional comments on this subsection. |
|
|
|
The Company has currently withdrawn the concept of a secured product and as such believes
that the above comment is no longer applicable. |
The Offering, page 3
|
13. |
|
Please indicate in the Security Interest section whether investors will receive a pro
rata portion of the one-time penalty fee if a borrower fails to satisfy the Secured
Conditions. Please ensure that your disclosure on this fact is consistent throughout your
entire Registration Statement. |
|
|
|
The Company has currently withdrawn the concept of a secured product and as such believes
that the above comment is no longer applicable. |
Questions and Answers, page 7
|
14. |
|
Please revise your fourth Q/A to indicate that your investors must satisfy your
financial suitability requirements in order to qualify as investors. |
|
|
|
The Company has revised its most recent filing to reflect the Staffs comment. |
5
|
15. |
|
Revise the fifth Q/A to indicate that if a borrower member satisfies the Secured
Conditions, the Note is still not secured by any collateral. |
|
|
|
The Company has currently withdrawn the concept of a secured product and as such believes
that the above comment is no longer applicable. |
|
16. |
|
Your Answer to the Question, Are the member loans secured by any collateral should
provide an answer that describes how investors can determine if a loan is secured, not
whether a loan can become secured. |
|
|
|
The Company has currently withdrawn the concept of a secured product and as such believes
that the above comment is no longer applicable. |
|
17. |
|
In the second question and answer on page 11, you discuss the impact of your bankruptcy
on the notes. Revise this section to clarify that the backup servicer will not be able to
make payments on the notes if the underlying loans are determined to be part of
LendingClubs bankruptcy estate. |
|
|
|
The Company has revised its most recent filing to reflect the Staffs comment. |
|
18. |
|
Please update the second Q/A on page 13, Will I be able to sell my Notes? to include
disclosure of the results to date of your Note Trading Platform. |
|
|
|
The Company will work with the operator of the secondary market to provide this
information to potential investors in a subsequent filing. |
|
|
|
The Company proposes the following metrics: |
|
|
|
|
average time to sale since inception (priced at or below par) |
|
|
|
|
total sold since inception |
|
|
|
|
average monthly sale amount since inception |
|
19. |
|
Please indicate in the answer to the Q/A Are there any risks associated with an
investment in the Notes? on page 13, that the limited information an investor has may be
unverified and/or inaccurate. |
|
|
|
The Company has revised its most recent filing to reflect the Staffs comment. |
|
20. |
|
Please be consistent in your description of what you will allow to be used as
collateral throughout the document as it is often unclear that you will only allow certain
items to be used as collateral and that the loan proceeds must be used to purchase the
collateralized item. |
|
|
|
The Company has currently withdrawn the concept of a secured product and as such believes
that the above comment is no longer applicable. |
|
21. |
|
Please move the Q/A on page 16 Can an eligible borrower pledge any type of collateral
for a secured loan? to the beginning of the Borrower Member Security Interest Program Q/A
section and include a Q/A regarding the requirement that the proceeds of the loan be used
to purchase the collateralized asset. |
|
|
|
The Company has currently withdrawn the concept of a secured product and as such believes
that the above comment is no longer applicable. |
|
22. |
|
Please add a Q/A that discusses the process, costs and difficulty that a borrower may
have when seeking to satisfy the Secured Conditions. |
|
|
|
The Company has currently withdrawn the concept of a secured product and as such believes
that the above comment is no longer applicable. |
6
|
23. |
|
We believe that the answer on page 15 to the Question What happens if the borrower
member... should read that the borrower will not receive the loan modifier. Please
correct this response. |
|
|
|
The Company has currently withdrawn the concept of a secured product and as such believes
that the above comment is no longer applicable. |
Risk Factors
|
24. |
|
Please update your Risk factors to include information through the period ended
September 30, 2010. Several of your Risk factors refer to your new business and while
your portfolio could not be classified as seasoned, you do have a period of operating
history that can provide updated disclosure through your Risk factor section. We
particularly note, the third Risk factor on page 17, the last Risk factor on page 19, the
first full Risk factor on page 20 and the first full Risk factor on page 21 and the Risk
factors discussed in the section beginning on page 25. |
|
|
|
The Company will revise its risk factors to reflect the Staffs comment above in
subsequent filings. |
While we believe that a secured loan will have a lower..., page 19
|
25. |
|
Provide the staff with your factual basis supporting the belief mentioned in the
subheading of this risk factor, or remove it from the subheading. |
|
|
|
The Company has currently withdrawn the concept of a secured product and as such believes
that the above comment is no longer applicable. |
About the Loan Platform, page 35
|
26. |
|
Revise this section to provide, in considerable detail, the requirement that must be
met in order to participate in your secured conditions program. In particular, please
describe what qualified collateral referred to in the forepart of the prospectus,
beginning on page 1. Also, please discuss your verification program for verifying that
vehicles represented by the titles provided by borrowers trying to satisfy secured
conditions. |
|
|
|
The Company has currently withdrawn the concept of a secured product and as such believes
that the above comment is no longer applicable. |
|
27. |
|
Please provide disclosure related to the following open items related to your secured
loan program: |
|
a. |
|
how you will work with the borrower member in order to perfect your
security interest in the vehicle they purchase with their loan proceeds, |
|
b. |
|
if you intend to work with the member borrower, please explain how you will
confirm that a security interest has been perfected, |
|
c. |
|
how do you verify that the borrower member is buying the collateral with
their loan proceeds, |
7
|
d. |
|
if a borrower members interest rate is decreased after it has made
payments at a higher rate, is the borrowers lowered rate retroactive to the
beginning of the loan, and |
|
e. |
|
how does the adjustment of the borrowers interest rate mid-loan impact an
investors rate of return? |
|
|
|
The Company has currently withdrawn the concept of a secured product and as such believes
that the above comment is no longer applicable. |
Identity Fraud Reimbursement, page 57
|
28. |
|
This section indicates that you have had twenty cases of confirmed identity theft.
Please identify the number of claims of identity theft that have been claimed but not
confirmed. Also, the disclosure in this section indicates that you have had twenty
confirmed cases, and that you have reimbursed investors in nineteen member loans. Please
explain to us this apparent discrepancy in the numbers, with a view towards revising this
section. |
|
|
|
The discrepancy was a typographical error that has been corrected in the Companys most
recent filing. |
Technology, page 79
|
29. |
|
Please file your backup and successor servicing agreement with Portfolio Financial
Servicing Company as an exhibit to your Registration Statement. We may have additional
comments. |
|
|
|
The Company filed this agreement as an exhibit to its most recent Quarterly Report on Form
10Q for the period ended December 31, 2010 and this will be reflected in the Companys
next Registration Statement. |
|
30. |
|
The prospectus includes a significant amount of disclosure regarding the structure of
your note program and the risks that investors face when investing in the program. Please
provide your analysis supporting your conclusion that the disclosure on your website is
consistent with the disclosure included in the prospectus. |
|
|
|
The Company believes that the information on the Companys website directed at investors
is condensed information derived from the prospectus as demonstrated by the pages labeled: |
|
(i) |
|
how the Company sets rates, |
|
(ii) |
|
risks, which discusses the riskiness of the investment and
directs the user to the risk factors of the prospectus, |
|
(iii) |
|
the collection process, |
8
|
|
|
all of which are summaries of information, or, in the case of browse notes, actual
information, contained in the prospectus. As to the pages such as our business model
(an efficient model), which as discussed will be revised, getting started, accounts, and
diversification are merely informational pages that the Company believes are not material
to the investors investment decision. Lastly, every page on the investors portion of
the website contains two (2) links to the Companys current prospectus (one on the left
hand side and the other in the lower right corner) and one (1) link to the current periodic filings of the
Company. Based upon the foregoing, Lending Club believes that the disclosures on the
investor portion of the Companys website are consistent with the disclosures included in
the prospectus. |
|
31. |
|
Provide your analysis supporting your conclusion that comparing the rate of return from
a bank CD product compared to the rate of return on a LendingClub note provides the
investor with an adequate comparison of the risks and returns associated with investing in
either vehicle. |
|
|
|
The Company will remove this graphic from its website by May 31, 2011. |
In connection with the Staffs comments, we hereby acknowledge that:
|
|
|
we are responsible for the adequacy and accuracy of the disclosure in the filing; |
|
|
|
Staff comments or changes to disclosure in response to Staff comments do not foreclose
the Commission from taking any action with respect to the filing; and |
|
|
|
we may not assert Staff comments as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the United States. |
|
|
|
|
|
|
Very truly yours,
|
|
|
/s/ Jason Altieri
|
|
|
Jason Altieri |
|
|
General Counsel |
|
|
9