New asset-backed product launch

just to follow this thread

baldpate shimself paulgul


Thank you for lending through us, greatly appreciated. It is worth noting that the LTV decreases every time a repayment is made. This is because repayments comprise of capital as well as interest. To answer specifically your questions relating to the scenario you outlined:

1) The full benefit of all rights relating to the hire agreement would pass to Funding Empire Security Trustee Company Limited, subject to the proviso that in the event of full repayment of the secured liabilities, these rights will pass back to BLX.


2) The benefit of any personal guarantees between BLX and any End User would be assigned to Funding Empire Security Trustee Company Limited in a default scenario subject to the proviso that in the event of full repayment of the secured liabilities, these rights will pass back to BLX.


3) We do not need any additional permissions to carry out consumer credit activities. We are already authorised for this as well as operating a peer to peer lending platform.


I hope this helps and if you have any other questions, please let me know.


Kind Regards,


Parag

madpierre Thank you for your comments.

The risk you outline exists only if BLX were to default on their payments to our lenders and we stepped in to collect the repayments due from their borrower AND they also default on their agreement. In this case if the recovery and sale of the asset did not cover the amount outstanding to our lenders, we would instigate legal proceedings to recover any shortfall from the end borrower. 

LTV's for loans under this model will vary depending on the strength of each deal and the outcome of BLX's credit assessment process which looks at the financial standing of the borrower as well as the asset being funded.

ABL3 will be going live this afternoon!

Hope this helps and if you have any other questions, please feel free to drop me a line.

Kind Regards,

Parag

Just a short note to say that ABL003 has now been listed on the platform.

Hi again parag,

thanks for your earlier reply to my question about the BLX default scenario. There are a couple of aspects of your reply which I'd like to follow-up on (one because I'm in agreement, one because I don't fully understand the implications of your statement):

Your point is well taken, Parag. Indeed, the fact that these loans are fully amortizing was definitely one of the factors which induced me to participate at the rate on offer. Although, in fairness, it should be pointed out that the assets which back the first two loans (cars and commercial vehicles) are themselves subject to depreciation. Nonetheless, in the case of the truck (Loan #2) in particular, I imagine the rate of depreciation is very much less than the rate at which the loan principal is repaid - another reason why I was not overly concerned by the high initial LTV. In fact, I have just yesterday increased my exposure to this loan.

Your reply, whilst I am sure it legally and factually completely accurate, doesn't really help me (a non-expert in such matters) understand exactly what happens in the default scenario.
Am I right in understanding from your reply that, following default by BLX, repayments made by the BLX borrower will be received by FESTCL (Funding Empire Security Trustee Company Limited), and that FESTCL will use this money to make repayments to FE lenders at the originally agreed rate? Inevitably, in a default situation, there will a backlog of overdue payments; however, once this has been satisfied a situation may arise in which FESTCL is receiving from the BLX borrower more than it must pay out to FE lenders. I'm trying to understand what happens to that potential surplus. Must FESTCL return that surplus to BLX (or its administrator)? If so, at what point? For example, may FESTCL (temporarily) retain the surplus until the BLX borrower has repaid the loan in full (thus building a buffer against later possible default by the BLX borrower)? Or have I completely misunderstood?

Hi baldpate Apologies for the delay in replying to your question. Here are our responses which I hope will answer the questions you raised.

In regards the first point about LTV's and depreciation. A large majority of vehicles covered under these agreements are second hand and therefore the statement you make about the rate of depreciation being less than the rate of principal repaid is correct in the vast majority of cases. As they are second hand vehicles they have already depreciated considerably. This would be very different if the vehicles were being purchased as brand new from a dealer.

On the second point, apologies for not making it clearer. I will answer the points you have raised below:

Q: "Am I right in understanding from your reply that, following default by BLX, repayments made by the BLX borrower will be received by FESTCL (Funding Empire Security Trustee Company Limited), and that FESTCL will use this money to make repayments to FE lenders at the originally agreed rate?"

A: This is correct.

Q: "Inevitably, in a default situation, there will a backlog of overdue payments; however, once this has been satisfied a situation may arise in which FESTCL is receiving from the BLX borrower more than it must pay out to FE lenders. I'm trying to understand what happens to that potential surplus. Must FESTCL return that surplus to BLX (or its administrator)? If so, at what point? For example, may FESTCL (temporarily) retain the surplus until the BLX borrower has repaid the loan in full (thus building a buffer against later possible default by the BLX borrower)? Or have I completely misunderstood?"

A: Under the terms of the debenture, BLX has to discharge its obligations under the Funding Empire loan agreements. If BLX defaults on, say, two Funding Empire loan agreements, then under the terms of the debenture, the underlying BLX hire agreements are to be assigned over to FESTCL and each BLX borrower will have to send its repayments to FESTCL instead of BLX. FESTCL would use those repayments to recoup monies lost. If the repayments of one of the BLX borrowers results in one of the Funding Empire loan agreements being repaid in full and there is also a surplus of monies, under the terms of the security trust deed, FESTCL can apply that surplus to the other Funding Empire loan in default.

However, if BLX is in default for just one Funding Empire loan and is still making payments on other Funding Empire loans and there is a surplus remaining after the BLX borrower makes its repayments to FESTCL then FESTCL is not entitled to retain such surplus just in case BLX defaults on the other Funding Empire loans. However, I expect that there has to be careful calculations etc to be made so I would not be surprised if FESTCL does not return any surplus to BLX immediately. I expect the timing of the return of any surplus would have to be considered on a case by case basis by FESTCL.

Hope this helps and if you have any other questions please let me know.

Kind Regards,

Parag