My Rich Uncle - History

History

MyRichUncle co-founders, Raza Khan and Vishal Garg, met at Stuyvesant High School in New York City and attended New York University together. In June 1999, Khan and Garg incorporated Iempower Inc., planning to enable investors to purchase an economic share of an individual's future income stream for a set amount of time. As they developed their business, they found that their original concept had significant crossover potential in the education financing market. Students, who have a large, recurring need for financing their immediate education expenditures, typically do not own any assets other than the potential future stream of cash flows they will receive as a result of their education. However, these education endeavors could be used to predict future income, which in turn, could be used to underwrite student loans. This concept was originally proposed by Nobel Laureate Milton Friedman in his paper, “Income from Independent Professional Practice,” as the optimal means of financing education. Further work by Nobel Laureates Gary Becker and James Tobin validated the concept and its applicability to education finance.

In May 2001, the founders launched www.myrichuncle.com, Iempower’s consumer-facing brand. Through this website, investors could provide money to pay for a student’s undergraduate or graduate degree expenses in exchange for a fixed percentage of that student’s future income for a set period after graduation. In order to decide how to allocate investor financing to students and at what rates, Iempower built a proprietary data model which used historical data going as far back as the 1960s to predict the future income and career prospects of each student based upon a variety of academic and credit factors. MyRichUncle received a tremendous amount of positive press and attention for its innovative and transformational business model "Banking on Someone Else’s Education: Financial Times, Feb 08, 2002" and over the course of 2001, the founders successfully raised $3 million to invest in students through programs such as the Robertson Education Empowerment Fund and the Education Investment Fund LLC, among others.

Iempower suffered a tragic setback in 2001 when the company's offices, located on the 78th floor of 1 WTC, were destroyed in the September 11, 2001 attacks on the World Trade Center. The company's recovery was later profiled by Entrepreneur magazine.

In the following years, MyRichUncle rebuilt and demand for MyRichUncle’s Education Investment product grew to the point that it significantly exceeded the investment capacity of the company. Around that time, the founders began to notice that a significant number of its Education Investment applicants also had private student loans, which, at the time, was the fastest growing segment of consumer finance.

MyRichUncle decided to apply its existing, highly relevant underwriting platform to the private student loan industry to achieve a competitive advantage through its advanced analytics and income prediction models. In Khan’s words, they “wanted to finance students in a variety of innovative ways.” Entry into the private student loan business, which was traditionally the mainstay of large banks and Sallie Mae, required the company to raise significant amounts of external capital. In July 2004, Iempower, with an equity capital raise of $4.2 million, entered into a reverse public merger with Pacific Technologies, a publicly traded company. Upon completion of the takeover, Iempower Inc. changed its name to “MRU Holdings, Inc.”

In February 2005, MRU Holdings obtained a $165 million credit facility, expandable to $300 million, for funding private student loans from Nomura Credit and Capital Corporation, a subsidiary of Nomura Holdings, Japan's largest investment bank. In May 2005, MRU Holdings began offering private student loans under the brand name “MyRichUncle.” In January 2006, MRU Holdings obtained a $175 million credit facility with Merrill Lynch Bank USA and also closed a $29 million PIPE (private investment in public equity) offering with Merrill Lynch Private Equity Partners, Battery Ventures, Lehman Brothers, and several senior MBNA executives. These investments allowed MyRichUncle to continue to develop its innovative product line to meet the needs of an ever larger population of loan-seeking students. MRU was convinced that students without a sufficient credit history or credit worthy co-signer, but with demonstrable academic and income potential, should be eligible to receive education financing, and began revisiting its original human capital investment concept, “Iempower.”

MRU used its groundbreaking research on future income potential to create a new loan product called “PrePrime.” PrePrime loans were underwritten based upon a student’s academic qualifications rather than the traditional credit criteria, which many students do not have enough history of. In May 2006, MRU introduced its PrePrime product to the market after raising investment funds through a consortium of European investors. MRU announced this product as the first of its kind stating that it “put the ‘student’ back into the student lending equation.” By April 27, 2007, MRU was able to expand its ability to originate PrePrime loans by securing a $100 million credit facility from Germany’s fifth-largest bank, DZ Bank.

In June 2006, MyRichUncle introduced its federal loan program as a complement to its private student loan products. Aiming to level the playing field with incumbent originators, MyRichUncle took this opportunity to attract new borrowers by offering discounted rates on Stafford and PLUS loans, setting fixed rates of 5.8% and 6.75%, respectively. These rates were significantly lower than the Federal Government interest rate maximums of 6.8% for Stafford loans and 8.5% for PLUS loans (from July 1, 2006, onwards).

In October 2006, MRU Holdings was listed on NASDAQ under the symbol UNCL. The company had a market capitalization of over $200 million.

In 2007, MRU Holdings entered into several acquisitions and partnership deals in order to enhance its product offering. MRU Holdings purchased Embark Corp. on February 12, 2007, from The Princeton Review. Embark provides online admissions applications and enrollment management services to colleges and universities, and to a number of other institutions, foundations, and scholarship and fellowship programs. In March 2007, one month after the Embark purchase, MRU Holdings announced a partnership with STA Travel to provide travel loans for study abroad students. In April 2007, MRU Holdings announced an exclusive marketing partnership with The Princeton Review. In June 2007, MRU Holdings closed its first securitization transaction (2007-A), issuing $200 million in principal amount of asset-backed securities through Merrill Lynch & Co.. Of the $200 million in bonds issued, $165 million of the bonds were rated AAA, with a $21.5 million tranche rated A, and a $13 million tranche rated BB by Standard & Poor’s and Moody’s. The issue had a number of innovative features, including the first issuance of BB-rated securities in a private student loan securitization transaction, and the first time a new issuer transaction was able to receive premium proceeds. MRU’s 2007-A trust significantly out-performed similar trusts from Sallie Mae and FMD private loan offerings and began to establish MRU as the preeminent underwriter of high credit quality private student loan assets.

To continue to meet the growing demand for student loans, MRU Holdings continued to look for additional funding. In November 2007, MRU Holdings secured an additional $200 million credit facility from DZ Bank.

In July 2008, MRU Holdings closed its second securitization, issuing $140 million in principal amount of asset-backed securities through Merrill Lynch, Goldman Sachs & Co. and BB&T Capital Markets. The securitization was the only student loan securitization transaction completed in nine months and was completed at a time when deals from larger issuers such as Sallie Mae and First Marblehead were rumored to be in the market, but unable to be completed.

Between May 2005 and September 2008, MRU Holdings originated over $550 million in student loans. However, despite its successes, the company was forced to cease further loan origination on September 8, 2008 due to the financial crisis and the increasingly limited supply of capital for making new loans from MRU’s lenders, some of the largest investment banks in the world. As a result of the worsening crisis, on February 9, 2009, MRU Holdings, Inc., the parent holding company of MyRichUncle, filed for Chapter 7 bankruptcy and suspended all its operations.