OREANDA-NEWS. Fitch Ratings expects to assigns the following ratings to Citi Held for Asset Issuance 2016-PM1 (CHAI 2016-PM1), which consists of notes backed by marketplace loans serviced by Prosper Funding, LLC (Prosper):

--$212,325,000 class A notes at 'A-sf(EXP)'; Outlook Stable;
--$24,850,000 class B notes at 'BBB-sf(EXP)'; Outlook Stable;
--$41,210,000 class C notes at 'Bsf(EXP)'; Outlook Stable.

KEY RATING DRIVERS

Adequate Collateral Quality: The 2016-PM1 trust pool consists of 100% unsecured, fixed-rate, fully amortizing, consumer loans that have either 36- or 60-month original loan terms, as well as originated and serviced on Prosper's marketplace online lending platform. The pool exhibits a weighted average FICO score of 704 and a weighted average borrower rate of 13.57%.

Sufficient CE and Liquidity Support: The initial hard credit enhancement (CE) for class A, B and C is expected to be 33.00%, 25.10% and 12.00%, respectively. Liquidity support is provided by a nondeclining reserve account, which will be fully funded at closing at 0.50% of the initial pool balance. Transaction cash flows were satisfactory under all stressed scenarios, commensurate with the expected ratings.

Untested Performance through a Full Economic Cycle: Loans originated and serviced via online platforms, such as Prosper's, do not yet have a performance history through a recessionary environment. Furthermore, as the underlying consumer loans are unsecured and primarily intended for debt consolidation, Fitch expects borrowers to treat paying down these loans as a lower priority relative to other borrowings, such as an auto loan or a mortgage. As such, the pool could experience especially elevated default frequency in an economic downturn. Fitch placed a rating cap on this transaction of 'Asf'.

Satisfactory Servicing Capabilities: Prosper will service all the loans in the 2016-PM1 trust, and Citibank, N.A. will act as the backup servicer. Fitch considers the servicing operations of Prosper of consumer loans to be acceptable and Citibank, as a backup servicer, to be effective.

RATING SENSITIVITIES
Unanticipated increases in the frequency of defaults or chargeoffs on customer accounts could produce loss levels higher than the base case and would likely result in declines of CE and remaining loss coverage levels available to the investments. Decreased CE may make certain ratings on the investments susceptible to potential negative rating actions, depending on the extent of the decline in coverage.

Fitch conducts sensitivity analysis by stressing a transaction's initial base case charge-off assumption by 1.5x, 2.0x, and 2.5x and examining the rating implications. Under the 1.5x base case stress scenario, class A and B notes would fall below investment grade. Under the 2.0x base case stress scenario, class A and B notes would be downgraded to 'B+sf' and 'Bsf', respectively. Under the 2.5x base case stress scenario, class A notes would be downgraded to 'Bsf', and class B notes would fall to distressed category ratings. Under all three stressed scenarios, class C notes would fall to 'CCCsf'.

Additionally, loans originated and serviced via online platforms such as Prosper's are still relatively new, and may be subject to regulatory scrutiny over concerns such as the 'true lender' among the parties and violations of state usury laws. Fitch believes it to be unlikely that this transaction will be materially affected by such regulatory actions.

Fitch also conducted sensitivity analysis by assuming 0% recoveries on all chargeoffs. In such a scenario, the class A and B notes would likely suffer a one notch downgrade; the class C notes would retain their 'Bsf' rating.

DUE DILIGENCE USAGE
There were no third party due diligence provided, as Citi conducted all the due diligence in-house.

Fitch's analysis of the Representations and Warranties (R&W) of this transaction can be found in 'Citi Held for Asset Issuance 2016-PM1 - Appendix'. These R&Ws are compared to those of typical R&W for the asset class as detailed in the special report 'Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions,' published in June 2015.