|
Post by Deleted on Sept 6, 2016 7:21:51 GMT
This is the second trache of an older project, Development Project, Formby (9631725522), released a few weeks back.
All tranches rank equally.
The project seems ok, but what puzzles me (and wonder if it is legally valid) is that the first tranche was paid 14%, while this second tranche is only offered at 13%. I see no reasons for this happening given they go pari passu. Both of them should have the same (higher) interest offered to investors of equal weight.
|
|
SteveT
Member of DD Central
Posts: 6,873
Likes: 7,918
|
Post by SteveT on Sept 6, 2016 7:43:30 GMT
Rates offered on FS reflect market conditions at the time. A reverse example is the upcoming Bath loan renewal, which is being offered at 13% versus the original 12%.
I can think of at least one example where a 1st tranche was filled at 12%, a smaller 2nd tranche at 13% and a large 3rd tranche (ranking behind the others) at 12%.
[Why there should be any legal issue with this is beyond me. The terms offered to lenders are clearly stated at the time they choose to bid]
|
|
|
Post by Deleted on Sept 6, 2016 8:10:21 GMT
Rates offered on FS reflect market conditions at the time. A reverse example is the upcoming Bath loan renewal, which is being offered at 13% versus the original 12%. I can think of at least one example where a 1st tranche was filled at 12%, a smaller 2nd tranche at 13% and a large 3rd tranche (ranking behind the others) at 12%. [Why there should be any legal issue with this is beyond me. The terms offered to lenders are clearly stated at the time they choose to bid] Renewal is a totally different matter (think of it as a second loan with the first not fully achieving the planned aims, so it is clear you have to raise the interest a bit). I talk about straight borrowing against a property. In this case we are talking about the SAME LOAN (just a second tranche) with the same priority n case of default and just a few weeks difference (market conditions did NOT change in any significative way). And yes when I say that I have doubts if this procedding is legally correct, I mean that in case of default of Formby you will have two sets of investors in the queue for recovery, teoretically equally weighted, but the first set with an accumulated interest base of 14% or so, and the second group with accumulated interest of 13%. So, they starting point for recovery will already be different from pari passu.... I don't find the situation fair at all. Interest should be raised to 14% to all investors in the same level of investment and same loan.
|
|
SteveT
Member of DD Central
Posts: 6,873
Likes: 7,918
|
Post by SteveT on Sept 6, 2016 8:20:47 GMT
So vote with your feet and don't bid If such a loan defaulted with multiple tranches ranking pari passu, lenders would have equal rights to their share of funds recovered (after costs). If these were only sufficient to cover 90% of capital, say, they'd all get 90% of their lent funds (but no accrued interest). If sufficient to cover 100% of capital and 60% of accrued interest, they'd have all of their lent funds returned plus 60% of their accrued interest. Consider also that many FS loans offer higher rates of interest for larger sums invested, yet all lenders rank equally. Is your contention that this practice too is "not legally correct"?
|
|
|
Post by Deleted on Sept 6, 2016 11:14:45 GMT
So vote with your feet and don't bid If such a loan defaulted with multiple tranches ranking pari passu, lenders would have equal rights to their share of funds recovered (after costs). If these were only sufficient to cover 90% of capital, say, they'd all get 90% of their lent funds (but no accrued interest). If sufficient to cover 100% of capital and 60% of accrued interest, they'd have all of their lent funds returned plus 60% of their accrued interest. Consider also that many FS loans offer higher rates of interest for larger sums invested, yet all lenders rank equally. Is your contention that this practice too is "not legally correct"? Weighting interest rate by investment size is standard practice, utilised by all platforms (see underwriters). But having multiple sets of investors with the exact same investment size but different interest rates (e.g. 1000 GBP on tranche 1 paying 14% and 1000 GBP on trance 2 paying 13%) is not common at all.
|
|
SteveT
Member of DD Central
Posts: 6,873
Likes: 7,918
|
Post by SteveT on Sept 6, 2016 11:24:21 GMT
Yet even FC are doing it these days (and not just via the old cashback route). Admittedly it's typically later tranches that get an elevated rate to fill them, but the principle of "pricing to market demand" is the same.
|
|
mikes1531
Member of DD Central
Posts: 6,452
Likes: 2,320
|
Post by mikes1531 on Sept 6, 2016 11:47:18 GMT
Looking back at the first tranche, the update on 15/Aug says "As this loan is nearing draw down, interest being offered to investors is being increased from 12% to 14%." The extra interest on that tranche was an incentive offered in order to get investors to commit to the loan quickly. I see that as no different to an offer of cashback in a similar situation, and IMHO just because investors in one tranche of a loan earn cashback doesn't mean that all investors in all tranches should earn cashback.
If FS have difficulty funding a subsequent tranche of a loan, or a loan renewal, ISTM that it's reasonable to use additional incentives -- such as cashback or bonus interest -- to encourage the necessary investment.
|
|
|
Post by reeknralf on Sept 6, 2016 11:58:48 GMT
So vote with your feet and don't bid If such a loan defaulted with multiple tranches ranking pari passu, lenders would have equal rights to their share of funds recovered (after costs). If these were only sufficient to cover 90% of capital, say, they'd all get 90% of their lent funds (but no accrued interest). If sufficient to cover 100% of capital and 60% of accrued interest, they'd have all of their lent funds returned plus 60% of their accrued interest. Consider also that many FS loans offer higher rates of interest for larger sums invested, yet all lenders rank equally. Is your contention that this practice too is "not legally correct"? I'm surprised by this. Is it general to pay off all capital, and only if there is money left over to pay interest pro rata? Or is this specific to FS? I naively assumed that if you were owed £106.50 (100 capital and 6.5 interest), and I was owed £107 (100 capital and 7 interest), that in the event of a shortfall of 10%, we would each get 90% of the total we were owed. A capital-paid-first system seems unfair. Consider two tranches, drawn down 3 months apart that defaults after 6 months. If there is sufficient to cover capital and nothing more, the owners of the first tranche lose 6% interest (94.3% recovery) , while those in the second only lose 3% (97.1% recovery).
|
|
SteveT
Member of DD Central
Posts: 6,873
Likes: 7,918
|
Post by SteveT on Sept 6, 2016 12:10:54 GMT
Fair question. My assumption is that, where tranches are deemed to rank equally, capital would be returned across the board before any interest were allocated. However I don't know whether this has ever been confirmed (or even firmly decided, given that the situation has yet to arise ...)
|
|
ilmoro
Member of DD Central
'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
Posts: 10,839
Likes: 11,068
|
Post by ilmoro on Sept 6, 2016 12:29:49 GMT
So vote with your feet and don't bid If such a loan defaulted with multiple tranches ranking pari passu, lenders would have equal rights to their share of funds recovered (after costs). If these were only sufficient to cover 90% of capital, say, they'd all get 90% of their lent funds (but no accrued interest). If sufficient to cover 100% of capital and 60% of accrued interest, they'd have all of their lent funds returned plus 60% of their accrued interest. Consider also that many FS loans offer higher rates of interest for larger sums invested, yet all lenders rank equally. Is your contention that this practice too is "not legally correct"? I'm surprised by this. Is it general to pay off all capital, and only if there is money left over to pay interest pro rata? Or is this specific to FS? I naively assumed that if you were owed £106.50 (100 capital and 6.5 interest), and I was owed £107 (100 capital and 7 interest), that in the event of a shortfall of 10%, we would each get 90% of the total we were owed. A capital-paid-first system seems unfair. Consider two tranches, drawn down 3 months apart that defaults after 6 months. If there is sufficient to cover capital and nothing more, the owners of the first tranche lose 6% interest (94.3% recovery) , while those in the second only lose 3% (97.1% recovery). Yes, most sites have a repayment order after a default. After recovery fees, return of capital is always the priority (before or after platform fees) then interest if sufficient funds are recovered. (Look at AC T&Cs for an example) Lenders own capital, they are only promised interest. Whether that promise will be able to be honoured should be considered as part of the risk analysis - that's why a loan paying monthly interest is potentially less risky than a term loan (all other things being equal) as the interest is tangible and banked, not just on paper, and recovery amount required is reduced (slightly different where retained interest is advanced as part of loan)
|
|
phil
Posts: 190
Likes: 165
|
Post by phil on Nov 16, 2016 18:00:48 GMT
According to FS "Value has been calculated as value of land (£450k) plus 63% of uplift (based on works completed per QS report)"
If that was my project I don't think I'd describe it as 63% completed.
|
|
fp
Posts: 1,008
Likes: 853
|
Post by fp on Nov 16, 2016 19:31:59 GMT
The last picture I saw had a piling rig in it.... sometimes, its what you can't see which creates the value/cost
|
|
mikes1531
Member of DD Central
Posts: 6,452
Likes: 2,320
|
Post by mikes1531 on Nov 16, 2016 21:04:06 GMT
The last picture I saw had a piling rig in it.... sometimes, its what you can't see which creates the value/cost My initial thought on seeing the photos -- thank you, pepperpot -- was that the site didn't look nearly progressed enough to take delivery of timber framing this week. Isn't it necessary to have something in the way of foundations to put the framing on? Or might the piling rig that fp saw have installed sufficient supports to take the framing?
|
|
phil
Posts: 190
Likes: 165
|
Post by phil on Nov 16, 2016 21:32:57 GMT
The last picture I saw had a piling rig in it.... sometimes, its what you can't see which creates the value/cost None of the above pics has what I'd recognise as a piling rig in it though can see those brown pies stuck in the ground which must be the aforementioned piles. If that was a house I was building and I told my wife it was 63% completed she'd cuff me round the ear.
|
|
fp
Posts: 1,008
Likes: 853
|
Post by fp on Nov 16, 2016 21:55:31 GMT
The last picture I saw had a piling rig in it.... sometimes, its what you can't see which creates the value/cost My initial thought on seeing the photos -- thank you, pepperpot -- was that the site didn't look nearly progressed enough to take delivery of timber framing this week. Isn't it necessary to have something in the way of foundations to put the framing on? Or might the piling rig that fp saw have installed sufficient supports to take the framing? I'm pretty certain the photo with the piling rig is on FS, although I could be mistaken for another loan. I'd expect a concrete raft at the least to build on, but if payment has been made in advance for the timber frame, its likely to take some time to manufacture, and although its not 63% complete, we're likely into 63% of the expense
|
|