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Post by Deleted on Nov 2, 2019 11:05:18 GMT
Hi, I was wondering if anyone had any thoughts on balloon payments.
I had a loan which was a regular payer and was restructured to a balloon payment. Paying very small amounts each month and paying 2 balloon payments in one and two years time.
The loan could be sold on the secondary market _ but would I forfeit my part of the balloon payment?
I guess in principle it is the same as if you sell a loan that is behind on payments _ who is entitled to the late payments when they come through, the seller or the buyer?
Thanks in advance
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Post by danraj on Nov 6, 2019 8:18:15 GMT
Hi apprentice,
My concern with balloon payments is that they can work for certain industries, like propery development bridging finance, where the equity in a devemopment is released on sale or remortgage.
However, I feel they are unsuitable for working-capital intensive businesses like pubs. SME bonds are likely to fail because the require a discipline to save for the balloon payment. Alternatively, they depend on the ability to re-raise or roll-over the debt.
IMHO platforms with capital and interest payments represent a better credit risk. If there is a problem with a repayment, the platform can intervene, offer help and try to facilitate the recovery of a struggling business. Whereas if there are no/minimal interim payments this is much harder.
As for the loss in interest, you can try selling for a premium equivalent to the interest you would have earned. Eg on a 6% pa bond, look for a 1.5% premium if you are 1 quarter of the way into the term. Assuming the platform allows you to add a premium.
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Post by Deleted on Nov 6, 2019 9:14:43 GMT
Hi,
Thanks for your thoughts.
The investment ".. provides a range of services, from property development, to student accommodation and investor services. The investor services include project management, for those who own developments, and joint venture projects for investors"
The platform allows selling for restructured loans such as this one and I could drop the interest rate but no one would buy it I'm sure.
Restructuring is better than defaulting or losing everything, but I'm not convinced that restructuring a company from regular payments, to this type of balloon payment, the first balloon payment being 2 years down the line,( one year to go) is in anyones best interest.
As you say it requires financial discipline that they have already shown they don't have.
You sign up to one thing and very soon after you get something totally different......
Thanks again.
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Post by propman on Nov 6, 2019 16:13:41 GMT
Hi, Thanks for your thoughts. The investment ".. provides a range of services, from property development, to student accommodation and investor services. The investor services include project management, for those who own developments, and joint venture projects for investors" The platform allows selling for restructured loans such as this one and I could drop the interest rate but no one would buy it I'm sure. Restructuring is better than defaulting or losing everything, but I'm not convinced that restructuring a company from regular payments, to this type of balloon payment, the first balloon payment being 2 years down the line,( one year to go) is in anyones best interest. As you say it requires financial discipline that they have already shown they don't have. You sign up to one thing and very soon after you get something totally different...... Thanks again. I agree that the balloon repayment loans are inherently more risky. However they are appropriate for lending for projects that will not yield cash in the interim. This is why they are extensively used for property development where the only receipts are from selling the property concerned. Any requirement for earlier payments would need to be sourced from further borrowing or different sources. While the latter would be great for lenders, it will often not be realistic and would open the possibility of delayed repayments despite the project remaining on track.
If the borrower is essentially identifying a reliable source of funds to repay the loan from an actual development, the restructure is sensible, although personally I think the platform should require a charge over the asset(s) concerned.
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Post by Deleted on Nov 6, 2019 16:59:01 GMT
Thanks
No the platform didn't take a charge over the property and the company has gone into liquidation although they are still paying the very small monthly payments.
I'm sure I couldn't sell it anyway, but it just got me thinking about how it works if the circumstances were different. I think the platform is so lacking in experience they probably could't answer the question. Most P2P wouldn't let you sell under these circumstances so it would never be an issue
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Post by danraj on Nov 6, 2019 17:03:24 GMT
@apprentice
I recommend reading the terms and conditions around any restructuring. If this is for genuine foreberance reasons, then the platform should look to try and further secure the new arrangement. I.e. they need some asset that will satisfy the debt.
If there are new/additional funds going to the borrower, then this is more concerning. On rebuildingsociety, when a business wants to restructure/refinance the loan, we ask the borrower for a new loan application, we then invite the past lenders to consider this new loan and the can opt-in by transferring their position from the old loan to the new one. Those who want paying out simply do nothing becuase the proceeds from the new loan are used to pay out the old loan.
There are some instances, where this is not practical and the restructuring is not optional, but we would normally have polled lenders as to the preferred action, given the circumstances.
If you find yourself invoulentarily a different type of investment than one that was promoted to you, then you are within your rights to complain. Doing so, might make the platform appreciate that, while this may be acceptable in exceptional circumstances, it cannot become the norm that lenders go into one investment, to find out that they are stuck with another investment they didn't want.
I hope this helps and that the platform has a suitable, liquid secondary market.
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ilmoro
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Post by ilmoro on Nov 6, 2019 17:37:19 GMT
@apprentice I recommend reading the terms and conditions around any restructuring. If this is for genuine foreberance reasons, then the platform should look to try and further secure the new arrangement. I.e. they need some asset that will satisfy the debt. If there are new/additional funds going to the borrower, then this is more concerning. On rebuildingsociety, when a business wants to restructure/refinance the loan, we ask the borrower for a loan loan application, we then invite the past lenders to consider this new loan and the can opt-in by transferring their position from the old loan to the new one. Those who want paying out simply do nothing becuase the proceeds from the new loan are used to pay out the old loan. There are some instances, where this is not practical and the restructuring is not optional, but we would normally have polled lenders as to the preferred action, given the circumstances. If you find yourself invoulentarily a different type of investment than one that was promoted to you, then you are within your rights to complian. Doing so, might make the platfrom appreciate that, while this may be acceptable in exceptional circumstances, it cannot become the norm that lenders go into one investment, to find out that they are stuck with another investment they didn't want. I hope this helps and that the platform has a suitable, liquid secondary market. This is all very interesting. As you seem to be offering opinions what are your thoughts on a platform that listed a loan with security but didn't register the charge until nudged by lenders? The borrower then went bust and it turned out the security had apparently been sold without lenders knowledge (it might even never have actually existed). Despite this the loan was still tradable on the secondary market for a period after administration and payments were made from an mysterious unknown source (borrower being in admin) All lender queries to find out the true position were ignored. (PS not the same platform as the loan above but possibly the same or related borrower)
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Post by Deleted on Nov 6, 2019 19:36:08 GMT
Hi Danraj, I actually spent a hour of my life I will not get back reading the T&Cs and was surprised that restructuring etc did not get a mention. I have sold out of this platform as much as possible. The platform is surprisingly liquid and I was very surprised at what people are prepared to buy.
Hi ilmoro
How do you know it is not the same platform? I'm intrigued! I never said because it was initially just a general question. But would love to know your guess.
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Greenwood2
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Post by Greenwood2 on Nov 6, 2019 20:08:11 GMT
Hi, Thanks for your thoughts. The investment ".. provides a range of services, from property development, to student accommodation and investor services. The investor services include project management, for those who own developments, and joint venture projects for investors" The platform allows selling for restructured loans such as this one and I could drop the interest rate but no one would buy it I'm sure. Restructuring is better than defaulting or losing everything, but I'm not convinced that restructuring a company from regular payments, to this type of balloon payment, the first balloon payment being 2 years down the line,( one year to go) is in anyones best interest. As you say it requires financial discipline that they have already shown they don't have. You sign up to one thing and very soon after you get something totally different...... Thanks again. I agree that the balloon repayment loans are inherently more risky. However they are appropriate for lending for projects that will not yield cash in the interim. This is why they are extensively used for property development where the only receipts are from selling the property concerned. Any requirement for earlier payments would need to be sourced from further borrowing or different sources. While the latter would be great for lenders, it will often not be realistic and would open the possibility of delayed repayments despite the project remaining on track.
If the borrower is essentially identifying a reliable source of funds to repay the loan from an actual development, the restructure is sensible, although personally I think the platform should require a charge over the asset(s) concerned.
If you don't like the feel of a loan get out, if you can! If you don't like the feel of the platform get out completely if you can.
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ilmoro
Member of DD Central
'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
Posts: 10,850
Likes: 11,078
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Post by ilmoro on Nov 6, 2019 22:08:09 GMT
Hi Danraj, I actually spent a hour of my life I will not get back reading the T&Cs and was surprised that restructuring etc did not get a mention. I have sold out of this platform as much as possible. The platform is surprisingly liquid and I was very surprised at what people are prepared to buy. Hi ilmoro How do you know it is not the same platform? I'm intrigued! I never said because it was initially just a general question. But would love to know your guess. No restructured loans on the platform I'm referencing I think.
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Post by Deleted on Nov 6, 2019 22:38:43 GMT
Borrower is C**** J**** H****.
With regard to your description of security not being registered, if you are referring to a debenture I noted this comment (paraphrased) on the administrators report of one of my “investments"
"During the administration p2p lender were found to have failed to have secured the loan with a debenture, having transferred the money to ***** Ltd before the debenture was created"
They were therefore treated as unsecured like everyone else.
I should have just put it all on red...
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Post by danraj on Nov 7, 2019 1:05:21 GMT
Failing to register a charge is a major oversight, especially if the loan was advertised as having such charge. This absolutely warrants a complaint. Same is true about continually trading on the secondary market if the loan profile misrepresents the security in place.
If the failing was on the part of the lawyers representing the platform. Then they may have a claim against the Professional Indemnity insurance of the legal firm.
If the failing was down to poor admin,
then this is potentially negligence.
It's actually quite easy to register an MR04 form with Companies House. Once they approve you as a lending institution.
A complaint pertaing to the failure of the platform to execute its duties, would probably be upheld by the regulator, who may ask the platform to make an insurance claim, or to make good any losses incurred as a result. They would probably be asked to undertake an audit to ensure the adequate security is in place on all loans.
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Post by Deleted on Nov 7, 2019 11:26:21 GMT
Thankyou for your insight, I have some ongoing claims with this P2p. The debenture issue is one of them. Interesting what you say about an audit. Although I am as sold out of this P2p as I currently can be I have a strong sence of mismanagement still going on and worry for new investors with them. I will post my experience with this p2p in full but I want all my claims settled first. Selfish I know. After what you've told me I think I will be making a couple more claims too.
Thanks again.
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Post by danraj on Nov 7, 2019 20:22:14 GMT
You're welcome.
Please don't tar us all with the same brush. You've been unlucky with a few bad actors, but the industry is going through a shape up and will turn a chapter very soon.
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