11% over 3 years from Ablrate P2P

redux

masonic wrote: »

Are you implying that lenders would not be given the option of exiting at the end of the original term?

I think someone is trying just a bit too hard to pick holes in it.

sparsely

Are you implying that lenders would not be given the option of exiting at the end of the original term?

I think someone is trying just a bit too hard to pick holes in it.

I don't think that highlighting potentially risky terms of the loan is picking holes in it! What fraction of the people lending money through ablerate are aware that they can do this?

From the Ablerate Lender Terms:

6.6. In exceptional circumstances and in its absolute discretion, Ablrate (acting as your agent and on your behalf) may agree with the borrower to restructure the loan and amend the Loan Contract in any of the following (limited) ways:

(a) to increase the term by one year, with a corresponding increase in interest rate to the higher of 13.5% or 4% above your interest rate;

(b) to increase the term by two years, with a corresponding increase in interest rate to the higher of 15.5% or 5.5% above your interest rate; or

(c) to increase the term by three years or more, with a corresponding increase in interest rate to the higher of 17.5% or 7% above your interest rate.

6.7 Where we believe that restructuring the loan would be in the interests of our Lending Members, you explicitly agree to Ablrate (acting as your agent) restructuring the loan and amending any contracts with the Borrower. We will notify you of our intentions to amend the loan agreements not less than 1 week before making such arrangements, but will seek to have agreement with all lenders before such an action, however, if a quorum cannot be reached Ablrate will have absolute discretion to act in what we believe is in the best interest of all Lenders.

The extra interest seems nice at first glance, but you will only be getting it if they can't find better terms elsewhere to refinance normally, so it will almost never be a good deal for lenders. I suppose ablerate might let some people exit but they are under no obligation to do so (+ the terms don't explicitly allow for it) and it seems more likely that they would just tell you to trade on the secondary market (as long as they haven't "paused" it that is).

redux

You were strongly criticising it before you bothered to read any of that, making points that don't seem to be representative of actual customer experiences.

masonic

sparsely wrote: »

The extra interest seems nice at first glance, but you will only be getting it if they can't find better terms elsewhere to refinance normally, so it will almost never be a good deal for lenders. I suppose ablerate might let some people exit but they are under no obligation to do so (+ the terms don't explicitly allow for it) and it seems more likely that they would just tell you to trade on the secondary market (as long as they haven't "paused" it that is).

They have obligations under the FCA's Treating Customers Fairly rules that you seem to be overlooking. Lenders who had a unilateral change to the structure of their loan agreement imposed upon them would have recourse under the FOS, so it would take the "exceptional circumstances" of the loan being on the verge of default for a platform to be able to make such an imposition without giving the customer an exit.

What has happened elsewhere in practice is that loans have either been repaid and a new loan drawn up (where there has been a change to the underlying security), or the loan has been extended as a renewal on an opt-in basis.

On the subject of "The extra interest seems nice at first glance, but you will only be getting it if they can't find better terms elsewhere to refinance normally", the whole point of bridging loans (which a lot of P2P consists of) is to do just that. Lenders receive "the extra interest" for every day the loan is in effect - what's not to like about that? Borrowers who just need to bridge for a short time while mainstream finance is sorted out are going to give some of the best risk adjusted returns. For someone who keeps complaining about liquidity risk, this seems a strange thing for you to highlight.

TheTracker

masonic wrote: »

They have obligations under the FCA's Treating Customers Fairly rules that you seem to be overlooking. Lenders who had a unilateral change to the structure of their loan agreement imposed upon them would have recourse under the FOS, so it would take the "exceptional circumstances" of the loan being on the verge of default for a platform to be able to make such an imposition without giving the customer an exit.

What has happened elsewhere in practice is that loans have either been repaid and a new loan drawn up (where there has been a change to the underlying security), or the loan has been extended as a renewal on an opt-in basis.

Just had a look at Ablrate Ts&Cs, they indicate Ablrate is able to restructure the loan as agent, and although a quorum of agreement would be sought, it is not apparently binding. That's enough for me not to use them.

At ThinCats there is no agent, the relationship is between a syndicate of lenders and the borrower. The sponsor can facilitate a vote for any change of terms or restructure, and the money-weighted vote is binding. Problem is, like with most democracy, a significant proportion do not vote.

I'm not entirely happy with the platforms doing this and believe there should be some rules around what constitutes a wholesale change. I was trapped in a recent loan where 1 month before maturity a vote was held to extend for 6 months. It's one of the reasons I no longer buy interest only debt obligations and steer away from bridging loans.

masonic

TheTracker wrote: »

Just had a look at Ablrate Ts&Cs, they indicate Ablrate is able to restructure the loan as agent, and although a quorum of agreement would be sought, it is not apparently binding. That's enough for me not to use them.

At ThinCats there is no agent, the relationship is between a syndicate of lenders and the borrower. The sponsor can facilitate a vote for any change of terms or restructure, and the money-weighted vote is binding. Problem is, like with most democracy, a significant proportion do not vote.

I'm not entirely happy with the platforms doing this and believe there should be some rules around what constitutes a wholesale change. I was trapped in a recent loan where 1 month before maturity a vote was held to extend for 6 months. It's one of the reasons I no longer buy interest only debt obligations and steer away from bridging loans.

The trouble with T&Cs is that there is a world of difference between the powers they apparently grant businesses and what actually happens in practice. My interpretation of the terms in question is that exceptional circumstances may arise in which Ablrate reserves the right to act in the best interests of its lenders by restructuring loans in the manner specified. There are clearly situations that could be envisaged in which such action would be in the best interest of all lenders and in those situations, there would be no recourse.

However, the contract does not specify which circumstances would be considered exceptional, and so one might fear the label "exceptional circumstances" could be thrown around rather like the airlines throw around "extraordinary circumstances" when they don't want to pay out compensation for flight delays. In such situations, the action taken may not be in the best interest of the customer. The OFT's position is that reasons for making a unilateral change to a contract must be specified, so making a unilateral change to the customers detriment for a reason not specified in the contract would fall foul of the Unfair Terms in Consumer Contracts Act. Such unfair terms are not enforceable and upon complaint to the FOS, one would expect a customer to be put back into the position they would be in if the action had not been taken. If a customer is lending responsibly, the value of the loan in question may well be less than the cost to the business of an upheld FOS complaint.

Of course, Ablrate could argue that the action they took was in the best interest of the customer (individual, not group, since the contract is between Ablrate and the individual). If that were the case, it's hard to believe that there wouldn't be anyone willing to lend in the customer's place. If there were new lenders willing to step in, then there should be no issue letting those who do not wish to take part in the restructured loan from exiting. However, if there really wasn't and in fact nobody would enter into the restructured contract, then that really would speak for itself.

It will of course ultimately depend on what happens in practice. So far, my impression is that Ablrate has got a pretty good track record for treating customers more than fairly in cases where loan circumstances have changed and said customers have wanted to exit loans prior to the loan drawing down or being available to trade on the secondary market. Only time will tell what happens in the future, but I don't think Ablrate will be in a position to, for example, let zombie loans limp on for years after they should have been declared in default, or let a borrower turn a fixed term loan into a rolling credit facility while locking lenders in to it.

jamesd

sparsely wrote: »

Also I just checked their website again and they can "pause" the secondary market on any loan if they feel like it, so I think that overall the liquidity risk on these things is pretty huge.

Loans are paused when there's a pending change of state, like repayment or an opt-in extension (all have been opt in so far). Also when there's a bug or other factor affecting transparency, which is why all of the amortising loans are currently paused, because while the yield is right on the secondary market trading pages, some of the other displays are not when trading them and this can lead to confusion. Meanwhile Ablrate will buy amortising loans on request from anyone who does have a need to exit. While that may not be at a price as high as an open market, there's also no chance that it would be below par's 100% of value because that would not be a realistic price on the market there.

I'm one of the lenders who suggested that it seemed like a better idea to suspend market trading in those loans than allow them to remain fully open with unclear information being presented.

As usual, after assorted discussions about how best to proceed while balancing the interests of those who wanted to buy or sell with those who might be misled by the inconsistent information, Ablrate responded to the lender feedback.

jamesd

sparsely wrote: »

The loan referenced in the title of the thread - it is advertised as 3 years, but if you read the Ablrate terms they can extend it to up to 6.

Thanks for providing the text of what you were referring to in a later post. Exceptional circumstances have to be genuinely exceptional in order to meet the FCA's treating customers fairly guidelines. It's not just because Ablrate think it'd be nice. There are times when an extension would be a better move for debt collection than seeking ownership of the security so it's a good option to have available. Ablrate do intend to allow secondary market deals even for impaired or defaulted loans, though that is yet to be relevant. Also no cases yet where the extension has been used.

Both Ablrate and MoneyThing have dealt with extension requests by providing a facility to choose to opt in or not, then making the rest available for new subscriptions, if there is any "rest". I don't think there's yet been a case where opt in has not been 100% at Ablrate but at Moneything there have been fairly small amounts sometimes for the routine renewals they have for some loans every six months. Those six month recurring loans are popular because they provide both shortish maturity and relative ease of keeping money invested, just tick a box when you get the notification of pending renewal.

SavingStream has had extensions that were not pure opt in. Many of their loans are to property developers and secured on the developments, with sale or mortgage the planned exit. When that's failed to happen on the timeline expected the loans have been extended. In the one default case so far, they moved to seek legal ownership of the security and secured 100% repayment of all capital, interest and their own legal fees.

sparsely wrote: »

Which is not true. They can repay early if they can find a better rate elsewhere.

Ablrate has refused attempts to repay early and have said that if there ever is such a request that seems worth accepting they would do it on terms that protect the value of those who purchased on the secondary market. That is, to eliminate the early repayment risk. Please provide a link to whatever it is that you're referring to that would grant a borrower a unilateral right to exit the loan early.

It's perhaps worth knowing that the person who does most of this stuff at Ablrate at the moment used to be a professional bond trader, so he's bee around the block more than a few times and understands the price and tradeability implications of assorted approaches to things, including the importance to price of avoiding early repayment risk, so you can rely on getting an accurate yield to maturity only, with no yield to call or to some unknown date issues to consider.

sparsely wrote: »

The liquidity worry isn't that liquidity is bad now, it's that it won't be there when you need it. Suggesting that there will be a 5% spread on this particular bond in two years time does not seem unreasonable to me

Maybe if the best bid was at par (100% of value) and the best offer was at 105% to give around 7 or 8% yield. No guarantees of course but that's been the way things have been at such platforms so far.

sparsely wrote: »

I just would never have it as part of my long term savings portfolio.

While I expect to have more than 70% of my total portfolio in P2P within a year. Of course not all at one platform. At the moment I think that the stability and risk/reward ratio I can get beats what's currently available in equities and standard bonds. Of course, I continually adjust my views and eventually this one will change, say after a 40% equity drop. And long term I think that risk/reward will trend towards other assets of similar quality, I think we're in part seeing early market effects on pricing still. I'm content to use such effects when I think they are there and move on when they go, as they have done at two P2P platforms where I'm running down my holdings as loans mature.

jamesd

sparsely wrote: »

I don't think that highlighting potentially risky terms of the loan is picking holes in it! What fraction of the people lending money through ablerate are aware that they can do this?

From the Ablerate Lender Terms:
...

"6.7 Where we believe that restructuring the loan would be in the interests of our Lending Members, you explicitly agree to Ablrate (acting as your agent) restructuring the loan and amending any contracts with the Borrower. We will notify you of our intentions to amend the loan agreements not less than 1 week before making such arrangements, but will seek to have agreement with all lenders before such an action, however, if a quorum cannot be reached Ablrate will have absolute discretion to act in what we believe is in the best interest of all Lenders."

TheTracker wrote: »

Just had a look at Ablrate Ts&Cs, they indicate Ablrate is able to restructure the loan as agent, and although a quorum of agreement would be sought, it is not apparently binding. That's enough for me not to use them.

Thanks for noticing my own handiwork and that of other lenders.

The original terms provided for 100% lender agreement, which was too dangerous, so we asked for them to be changed so that 100% lender agreement was not required. To understand why we did that, consider these cases:

1. Borrower or their agent buys part of the loan on the secondary market, then vetoes all changes to their detriment.
2. Lender says "I will veto all changes unless you buy me out at 110% of the current value of my investment". Or 120%, or whatever else they can dream of.
3. Customer buys 1p worth and vetoes all changes to all loans because they are unhappy about something else unconnected to the particular loan involved.
4. One of the lenders died and say there is a dispute about administrator for their estate. They can't vote even if they want to until an administrator is appointed. I've personal experience with an estate that is more than three years into this sort of thing at present. That's a long time to wait before doing anything on a loan that needs action.
5. One lender just doesn't bother to vote.

So to reduce the risks and ensure that troublesome loans could be dealt with properly, we asked for it to not take 100% lender agreement and Ablrate obliged.

TheTracker wrote: »

At ThinCats there is no agent, the relationship is between a syndicate of lenders and the borrower. The sponsor can facilitate a vote for any change of terms or restructure, and the money-weighted vote is binding. Problem is, like with most democracy, a significant proportion do not vote.

Right. One of the reasons why we asked Ablrate to make a change.

TheTracker wrote: »

I'm not entirely happy with the platforms doing this and believe there should be some rules around what constitutes a wholesale change. I was trapped in a recent loan where 1 month before maturity a vote was held to extend for 6 months. It's one of the reasons I no longer buy interest only debt obligations and steer away from bridging loans.

Platforms do need some way to resolve issues. However, I can see why you would object to being compelled. What platform was it? Weren't you given the choice to opt in or out, the approach used at Ablrate or MoneyThing to any sort of routine extension? No resale option wherever it happened, I suppose?

I do have an advantage when it comes to assessing how Ablrate will handle things because I've been actively engaged with them for quite a while now and know that they both do sensible things and respond to customer concerns.

TheTracker

TheTracker wrote: »

I've pledged a small amount against AC on Seedrs, but afraid it's lower than otherwise due to lack of p&l information available plus I'm not a huge fan of convertible loans. I also expect the other platforms to go down the same route. which will win? Will post back in 2 years with results

2 years was not enough for results. The trigger event (significant series of fund raising) for the convertible never happened. Instead equity was released at a longstop of 2 years. Fair valuation of about +35%, a healthier balance sheet, and EIS in effect so still good signs. Just have to hold another 3 years then hope there is a way to sell. So, just a tale that with crowdfunding and EIS one must be in it for the long haul and be willing to accept total loss.