SteveT
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Post by SteveT on Dec 5, 2015 16:29:33 GMT
So can I see it as 80% of 50% or is it 50% of 80% or am I completely off track? Er, the latter I'm afraid. See previous explanation from james (50% relates to the finance agreements income stream. 80% relates to the underlying retail value of the cars on which the finance agreements are written).
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Post by reeknralf on Dec 5, 2015 17:50:46 GMT
I agree with james that we need to know the loan maturities to assess the coverage. In contrast to him, it seems to me that shorter loan maturities are better. If AE were to go belly up, and for illustrative purposes, it took 12 months to collect enough money to repay us, we would want £112 for each £100 of capital outstanding, plus MT's cut (6% for example). As such 50% becomes (50*1.18)/100=60%. If the car loan maturities are only 1 month the comparable sum is (50*1.015)/100=51%, so shorter maturities are better. Perhaps there's a benefit to longer loans that I'm missing? Correctly accounting for the amortising nature of the car loans complicates the maths, but the same distortion remains.
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am
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Post by am on Dec 5, 2015 17:56:51 GMT
My take on it.
The security is only applicable if AE defaults.
I am not aware that it has been explicitly stated anywhere, but I presume that these are non-amortising loans.
So, if AE defaults the security has to cover the full capital and any arrears of interest that have built up before MT exercises its step in rights.
The security carries the right to an income stream that in the absence of defaults will generate twice the capital. In the absence of defaults I would take it that the income stream would first pay off the arrears of interest, and then the loan effectively becomes an amortising loan as each month's income pays of that month's interest and some of the capital. (With the rates AE's customers are paying there should be plenty of interest rate margin to apply to capital reduction.) The income stream lasts for more than 6 months, but it would require modelling with numbers to work out whether it takes more or less than 6 months before we are paid our dues and the income stream reverts, I presume, to the hypothetical administrators of AE.
But to justify the rates that AE charge its HP borrowers there must be a considerable rate of default, so a model that assumes an absence of defaults is not realistic. What will happen is that every month some percentage of the income stream goes away and the total expected value of the income stream decreases. If it drops below a threshold it would no longer be sufficient to cover what we are due. My guess is that threshold is under 60%, but it needs modelling.
But the loss of the income stream is offset by the gain of the physical security. The physical security is supposed to be worth 125% of our capital exposure. By the time MT exercises its step in rights it will have drifted a little lower and will continue to depreciate over the run off period. On the one hand second hand cars are a relatively liquid asset and don't depreciate that fast, so there should be decent reasonably prompt realisations[1]. On the other hand there is a good chance that any default would be correlated with a general fall in prices on the second hand car market. So I don't think that the physical security can be guaranteed to cover the capital. But since the physical security should at least come fairly close I would expect that the income stream would comfortably make up the difference.
But to have a more objective evaluation it's necessary to model ("stress-test") the run off with various values for arrears, defaults, depreciation and market movements (and any other factors that I have overlooked). Has MT done this? Or has AE provided MT with the results of such modelling?
[1] The valuations are Glass's Guide Values. Who knows how that compares to the price a dealer would pay, or to a price obtainable at an auction - I don't think that we can expect MT to turn it's hand to retail car sales.
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duck
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Post by duck on Dec 5, 2015 18:29:29 GMT
On the subject of the valuations against Glass's Guide I note the use of GGR - Glass's Guide Retail as opposed to GGT - Glass's Guide Trade.
The Trade, needless to say work on trade value (well thumbed copies at every auction, done that myself!) so if a quick sale was needed that would be the value that should be achieved. What (if any) implications that has I haven't got my head around yet.
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jonah
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Post by jonah on Dec 5, 2015 18:41:20 GMT
On the subject of the valuations against Glass's Guide I note the use of GGR - Glass's Guide Retail as opposed to GGT - Glass's Guide Trade.
The Trade, needless to say work on trade value (well thumbed copies at every auction, done that myself!) so if a quick sale was needed that would be the value that should be achieved. What (if any) implications that has I haven't got my head around yet. Do you have a view of the average gap between the two? Surely that would be the reduction in the 80% number.
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webwiz
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Post by webwiz on Dec 5, 2015 20:54:33 GMT
These figures are really scary - not for us investors necessarily, but for the borrowers. I assume these people must be desperate to get a car but have a poor credit history. If I have understood them correctly they seem to pay up to 20% above GGR for the car (eg 500133) and then up to 137.73% APR on the interest (CLC00156). These figures suggest a high default rate. In some cases the amount still to be paid will exceed the value of the car for almost all the period of the loan, making it in the borrower's interest to return the car at any point until the last payment or two.
Or have I got it all wrong?
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james
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Post by james on Dec 5, 2015 23:48:15 GMT
They will do HP agreements even for a person who is a day out of bankruptcy and/or with only benefit income, so high interest rates are to be expected for some loans and such a customer has quite limited alternative options available. They also do them for those who are self-employed at probably the lower end of the interest rate range.
Maximum amount lent is up to 90% of the trade value.
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shimself
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Post by shimself on Dec 6, 2015 10:00:28 GMT
Confused !! In the intro document it says "A*** E*******, trading as T** C** l*** C*****" But on companies house "T** C** l*** C***** Ltd" was renamed "A*** E*******" in 2014 This year the MD has set up and renamed "t**** p**** C** A******* Ltd" to "T** C** l*** C***** Ltd" as the sole officer and shareholder. So i don't see how AE can trade as "T** C** l*** C***** " or understand who we are dealing with. Maybe Ed can comment? ****** ******* *** * ***** ** ***! ** *** ***** ****? *** **** *******
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ilmoro
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'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
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Post by ilmoro on Dec 6, 2015 10:14:25 GMT
Confused !! In the intro document it says "A*** E*******, trading as T** C** l*** C*****" But on companies house "T** C** l*** C***** Ltd" was renamed "A*** E*******" in 2014 This year the MD has set up and renamed "t**** p**** C** A******* Ltd" to "T** C** l*** C***** Ltd" as the sole officer and shareholder. So i don't see how AE can trade as "T** C** l*** C***** " or understand who we are dealing with. Maybe Ed can comment? ****** ******* *** * ***** ** ***! ** *** ***** ****? *** **** ******* Oo! Hangman. Is there an E?
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david42
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Post by david42 on Dec 27, 2015 23:32:55 GMT
Ed, can you repost it as .xls rather than .xlsx for those with older versions of Excel. (best practice for future reference) Ta solicitorious if you are using an old version of MS Office, I recommend installing Microsoft's file format converters. I use Microsoft Office 2000 and I can now read .xlsx and .docx files.
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