FC Recoveries

p2pete . FC publishes data on lifetime default rates and annualized losses given default, rather than recovery rates by loan cohort. Nonetheless, these loan statistics do allow you infer recovery rates, albeit this requires some assumptions regarding the weighted duration of the portfolio and the term structure of loan default probabilites. It's also worth mentioning that recoveries take a long time, so at this point it's hard to say anything concrete about the 2016-18 loan cohorts. For the 2011-15 loan cohorts however, we can now be fairly confident that the data published allows us to infer final recovery rates. The average recovery rate over that period is in the region of 35%. This masks fairly wide range of volatility since recovery rates have varied from lows of <20% (the 1H15 cohort) to 45%+ (2H12 cohort).

Given these loan books were full of the unsecured debt of SMEs (really just small or even micro enterprises) this is a very good result. It compares well with the recovery statistics of other secured SME debt platforms such as TC which has a recovery rate of 45-50%. Of course, the value of your recovery is suppressed when considered in PV terms i.e. if a recovery takes three years then the effective opportunity cost in lost interest may be 25-30%, so a recovery of 35% is worth only say 27% at the point of default.

If I were to make a guess for final 2016 recovery rates I would say they would be lower than this average, perhaps 20-25%, while early 2017 loans seem to be doing better with recoveries back toward 35-40%. Generally, one would assume that, given the maturity of the economic cycle, recovery rates would follow the normal pattern and fall somewhat as we move into the next downturn. That, however, would apply to all platforms, not just FC.

Edit: FC is essentially a "fire and forget" black box product at this point. Your net returns are simply a function of yield, the probability of default and recovery rate. Their default rates are much lower than many higher yielding secured property platforms which compensates for the lower recovery values. Communications, updates etc will not impact either variable, and in my view FC is wasting their time providing any updates at all. This is a numbers game; comms is seriously overated by posters on this forum.

My F.C. account, same age, has losses of £4,415 and recoveries of £1,723. A 39.03% rate. Managed to sell out all property about 2 years ago.

My FC account is less than 2 years old - 2.35% of recoveries so far. 

My account is nearly 6 years' old and currently recoveries stand at 43%.  I've been pleased with FC's persistence in the pursuit of recoveries, although not so impressed by their handling of the short term London property loan - by far my largest loss to date.

That's a very interesting insight into the process from the borrowers side & might become a more frequent event as the loanbook balloons in size; I can only relate my own experience as a SME loan only lender (never invested in property loans but I understand some were "problematic"). My seasoned account had recovery rates in the low 40%, which mirrors the experience of valerieb above, I made a large lending increase just before manual lending was removed last Autumn & defaults over those last 9 months have increased significantly, so the rate is now mid 20% but still too early to judge performance on these as recoveries are only just starting. Whether it climbs back to where it was I somewhat doubt as the quality of the loans has declined as the DD bar has been lowered in pursuit of volume growth (in an attempt to drive up the value of a future IPO).

Recovery result rates are obviously both a function of the process (which I still believe is very good) & the quality of the borrowers which I am in no doubt has declined over the years. When I compare FC to the recovery processes across similar SME lending platforms such as Rebs, LC, Abl, AC there is no comparison in either established procedures nor results, only AC comes anywhere close.

Just peeking over the fence in a quiet moment elsewhere but I think the 'lending' model you refer to is what drove away quite a few of the established lenders prior to the Sept 17 change . Relinquishing control of exactly who your money is being lent to seems to me like trying to drive a car in thick fog with welders goggles on. Donating rather than lending seems a more accurate description of FC's new lending model.