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Post by Badly Drawn Stickman on Oct 10, 2019 11:02:34 GMT
Some questions based on a quick look of the documents provided. The proposal notes that this loan is 75% LTV "based on Ablrate Lenders' Amount". As the Ablrate Lenders Amount is 500K, this suggests a valuation of the underlying security as £666.6K. Whilst the proposal notes a GDV of the project as £4.785M, I cant seem to find any details or a Valuation Report for how the £666.6K amount used for the LTV calc has been arrived at. Have I missed something? Also its not clear if this loan has a first charge on the security or a lower charge. Yes, why can't it be understood in plain English Tru dat (as the young people say - they probably don't) Smoke, mirrors and a pretty girl usually suggests a trick is going to happen.
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baldpate
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Post by baldpate on Oct 10, 2019 11:03:06 GMT
There is a first charge loan from another lender (@ 65% LTGDV), which obviouly ranks ahead of of ABL lenders. As I read it, the borrower will use the loan to fund a joint venture participation in the development, alongside the developer. So no subsidiary legal charge.
EDIT : Just seen SteveT has already provided this info - and an assessment (highlights : "Strewth! ...mezzanine ... leap of faith" ) with which I'm in full agreement.
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criston
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Post by criston on Oct 10, 2019 11:03:21 GMT
As I understand it is a second charge loan. Am I correct? Looks like it. 'P****** will rank ahead of P1 Investments / Ablrate Lenders’ interests in an event of default'.
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SteveT
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Post by SteveT on Oct 10, 2019 11:07:01 GMT
As I understand it is a second charge loan. Am I correct? I can see no mention of any legal charge over the development itself, only assignment of interests and shareholding in the JV plus corporate and personal guarantees. (Crossed with baldpate)
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Post by westcountry on Oct 10, 2019 11:07:08 GMT
Some questions based on a quick look of the documents provided. The proposal notes that this loan is 75% LTV "based on Ablrate Lenders' Amount". As the Ablrate Lenders Amount is 500K, this suggests a valuation of the underlying security as £666.6K. Whilst the proposal notes a GDV of the project as £4.785M, I cant seem to find any details or a Valuation Report for how the £666.6K amount used for the LTV calc has been arrived at. Have I missed something? Also its not clear if this loan has a first charge on the security or a lower charge. The loan is second charge (at best) on the development, the first charge loan is from a banking group for £3.11m. I think the 75% LTV is arrived at by taking the total of the first charge loan (£3.11m) and the ABLRate loan (£500k), and dividing this by the GDV of £4.785m. Personally, I'm not too comfortable on the security of this loan. Lending against the GDV of a project didn't work out well on MoneyThing or Lendy, and personal and corporate guarantees and a corporate debenture can be worthless in my experience (company collapses/personal guarantor goes bankrupt etc) So to me the only bit of the listed security which sounds concrete is "An assignment over a further development project valued at least 100% of the loan", and no details are provided of this. ablrate , please would you be able to provide further details of the further development project security?
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blender
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Post by blender on Oct 10, 2019 11:07:43 GMT
I do not think that Ablrate lenders have any charge on the property, just an assignment of the borrower's interest in a JV with the developer. P9 explains. The GDV is £4.785M, the primary lender has a first charge (not change as in typo) of £3.11M. That leaves £675k. The Ablrate sum of £500k is about 75% of that residual GDV, which would be available for a second charge, though Ablrate lenders do not actually have a second charge and I am not sure if the borrower does.
Edit : I see I agree with westcountry. You don't get 13% for a first charge on a 12% LTV residential property development in a desirable suburb of Winchester.
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jsmill
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Post by jsmill on Oct 10, 2019 11:08:19 GMT
I'm out on this one. Secondary charge lending on residential developments isn't for me. Also to be frank I have no idea why property developers with combined net assets of £5m would need financing this expensive to do business. The margins are surely simply not good enough to make this attractive. Development schedules, even for top developers, are subject to potential delays and I am struggling to work out how this is a viable model.
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jsmill
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Post by jsmill on Oct 10, 2019 11:10:15 GMT
Sorry, just to add it is not even technically a secondary charge, it is an assignment of security. My point was primary security is a minimum criteria for me on residential development lending.
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SteveT
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Post by SteveT on Oct 10, 2019 11:12:07 GMT
I'm out on this one. Secondary charge lending on residential developments isn't for me. Also to be frank I have no idea why property developers with combined net assets of £5m would need financing this expensive to do business. The margins are surely simply not good enough to make this attractive. Development schedules, even for top developers, are subject to potential delays and I am struggling to work out how this is a viable model. Because they are not developing properties themselves. They are providing mezzanine finance to other property developers who need to raise more money than their principal (1st charge) lender is prepared to lend them at a good rate. Hence the developers are paying a very high rate on an extra slice of borrowed money.
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SteveT
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Post by SteveT on Oct 10, 2019 11:19:47 GMT
ablrate , can you please confirm whether the "first loss portion" funded by P* Investments Ltd is £375,000 or in fact just £87,500 (ie. 10% of the Loan Amount of £875,000) " P* I********** Ltd Amount: initial subscription £375,000, min first loss portion 10% of Loan Amount" (page 9)
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sapphire
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Post by sapphire on Oct 10, 2019 11:25:58 GMT
ablrate , can you please confirm whether the "first loss portion" funded by P* Investments Ltd is £375,000 or in fact just £87,500 (ie. 10% of the Loan Amount of £875,000) " P* I********** Ltd Amount: initial subscription £375,000, min first loss portion 10% of Loan Amount" (page 9) Although bidding opens at 2pm, £375K of the overall £875K loan amount has been shown as invested, suggesting that this is the first loss portion. Presumably there is a written undertaking that this 'first loss' portion will be held till the loan is redeemed and not disposed off on the SM or otherwise?
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Post by ablrate on Oct 10, 2019 11:26:05 GMT
ablrate , can you please confirm whether the "first loss portion" funded by P* Investments Ltd is £375,000 or in fact just £87,500 (ie. 10% of the Loan Amount of £875,000) " P* I********** Ltd Amount: initial subscription £375,000, min first loss portion 10% of Loan Amount" (page 9) We are putting together clarification on some points above. For this particular question, Steve, they have deposited £375,000 to be bid in the loan (which is what they have done) and they cannot sell it on the secondary market for at least 4 months (and then only at par) and they cannot have less than £87,500 in the loan if they do. They have said that they don't envisage selling it down.
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Post by Ace on Oct 10, 2019 11:27:30 GMT
Lots of comments mentioning 75% LTV, but this should really be replaced with 80% LTGDV, as the borrower is allowed to sell down their share of the loan on the SM to this value (with ABLrate's permission). I'm not saying there is anything wrong with this, and will probably take a small slice myself, but the 75% figure is meaningless given that the goalposts are allowed to be moved.
Having said that, I welcome the fact that ABLrate are introducing a new borrower. Can't expect a low risk investment for 13% return.
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criston
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Post by criston on Oct 10, 2019 11:30:39 GMT
GDV £4.785m
First Charge £3.11m plus Second Charge £875k = £3,97K = 83% of £4.785m
First Charge £3.11m plus Second Charge £500k = £3,61K = 75% of £4.785m
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jsmill
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Post by jsmill on Oct 10, 2019 11:30:42 GMT
I'm out on this one. Secondary charge lending on residential developments isn't for me. Also to be frank I have no idea why property developers with combined net assets of £5m would need financing this expensive to do business. The margins are surely simply not good enough to make this attractive. Development schedules, even for top developers, are subject to potential delays and I am struggling to work out how this is a viable model. Because they are not developing properties themselves. They are providing mezzanine finance to other property developers who need to raise more money than their principal (1st charge) lender is prepared to lend them at a good rate. Hence the developers are paying a very high rate on an extra slice of borrowed money. Hi SteveT, I appreciate they are not doing this development themselves, I was using that as a general description of their line of business. My point was that if you are going to provide high tier financing over uncertain time scales that doesn't to me make sense if you are yourself having to borrow at penal rates to fund it. If you look at the marginal cost of capital and the inherent risks in property development I really don't see the attraction.
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