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Post by mrclondon on Feb 18, 2016 18:19:04 GMT
I was more defending the position that AC are receiving direct criticism for this. The danger for AC with yesterday's email (and a few other similar missives for other struggling loans) is that it is presenting the borrower's rose tinted view of the world, with inadequate commentary discussing risks and probabilities. The addendum to the new Scottish £6m loan is a thorough and balanced discussion, yesterday's email on this Welsh loan isn't. I've already mentioned it only presents commentary on one option, I'd go further and say the commentary on that one option is also too one sided. I don't want to mention the exact figure on an open forum, but the target annual rental for the 25 year restaurant lease is quite a bit more than the national chains pay for similar leases in prosperous south east towns. Divide that proposed rent by 365 to see how much it equates to on a daily basis ... IMO the probability of covering that plus the other overheads day in day out looks rather low. If yesterday's email had been to the standard of the Scottish addendum it wold have explicitly listed this risk, and discussed whether market research had been carried out to support the covers required by the pizza chain at this level of rent to make a profit are likely.
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Post by chris on Feb 18, 2016 18:21:58 GMT
I was more defending the position that AC are receiving direct criticism for this. The danger for AC with yesterday's email (and a few other similar missives for other struggling loans) is that it is presenting the borrower's rose tinted view of the world, with inadequate commentary discussing risks and probabilities. The addendum to the new Scottish £6m loan is a thorough and balanced discussion, yesterday's email on this Welsh loan isn't. I've already mentioned it only presents commentary on one option, I'd go further and say the commentary on that one option is also too one sided. I don't want to mention the exact figure on an open forum, but the target annual rental for the 25 year restaurant lease is quite a bit more than the national chains pay for similar leases in prosperous south east towns. Divide that proposed rent by 365 to see how much it equates to on a daily basis ... IMO the probability of covering that plus the other overheads day in day out looks rather low. If yesterday's email had been to the standard of the Scottish addendum it wold have explicitly listed this risk, and discussed whether market research had been carried out to support the covers required by the pizza chain to make a profit. Thanks for the feedback. I will raise it as a concern with the rest of the board.
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mikes1531
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Post by mikes1531 on Feb 18, 2016 19:09:06 GMT
When this loan first appeared, it looked to me as one of the probably unsustainable ones, given the interest rate. IIRC, the borrower was refinancing away from a mainstream lender that was willing to write off a big chunk of the debt. I was hopeful that the higher rate of interest would be sustainable because it was being applied to a smaller capital amount, and at the time it appeared -- because of the previous abortive attempt by AC to get this loan funded -- that the higher interest rate was necessary in order to raise the necessary funding. What a difference a bit of time can make. If this borrower came to AC today, AC might be able to offer them significantly better terms, and probably would have no problem funding the loan at 9%. Is there any scope for dealing with this situation as a refinance, raising money from new investors and paying off the original investors with the proceeds?
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oldgrumpy
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Post by oldgrumpy on Feb 18, 2016 19:43:33 GMT
I would have a problem funding at 9% a borrower with his record in recent years.  |
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Post by Butch Cassidy on Feb 18, 2016 20:08:40 GMT
I posted this on the Q&A 1st June 2015 "The security looks fairly strong on this loan & the borrower is clearly engaged & committed to working towards a solution for what appears to be normal trading difficulties; as such perhaps AC could provide him & lenders with a rescheduled payment plan to take account of his current ability to pay, as opposed to pushing him into arrears & possible default interest? If more students do eventually materialise payments could then increase to reflect the increased turnover/profit potential."
Then on 4th Nov 2015 "Given the generally positive trading update & ongoing borrower cooperation; will lenders be given a vote to REDUCE the interest rate on this loan, perhaps when the arrears have been cleared, in order to give the business the best possible chance to succeed?"
Why has it taken AC 9 months to even address this most obvious course of action? I'm afraid it looks like ongoing loan monitoring & proactive solutions to potentially distressed loans is just non existent, which is why criticism is warranted.
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Post by andrewholgate on Feb 18, 2016 20:53:13 GMT
I posted this on the Q&A 1st June 2015 "The security looks fairly strong on this loan & the borrower is clearly engaged & committed to working towards a solution for what appears to be normal trading difficulties; as such perhaps AC could provide him & lenders with a rescheduled payment plan to take account of his current ability to pay, as opposed to pushing him into arrears & possible default interest? If more students do eventually materialise payments could then increase to reflect the increased turnover/profit potential."
Then on 4th Nov 2015 "Given the generally positive trading update & ongoing borrower cooperation; will lenders be given a vote to REDUCE the interest rate on this loan, perhaps when the arrears have been cleared, in order to give the business the best possible chance to succeed?"
Why has it taken AC 9 months to even address this most obvious course of action? I'm afraid it looks like ongoing loan monitoring & proactive solutions to potentially distressed loans is just non existent, which is why criticism is warranted. Yet when we offer a stay of execution on other loans we've been criticised for not charging a higher rate. I'm assessing all the points and revert b
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bugs4me
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Post by bugs4me on Feb 18, 2016 23:00:38 GMT
When this loan first appeared, it looked to me as one of the probably unsustainable ones, given the interest rate. What a difference a bit of time can make. If this borrower came to AC today, AC might be able to offer them significantly better terms, and probably would have no problem funding the loan at 9%. Is there any scope for dealing with this situation as a refinance, raising money from new investors and paying off the original investors with the proceeds? That may work provided you have a sustainable business model. IIRC the business was largely dependent upon student trade and by all accounts this has not materialised as hoped. Unfortunately, the restaurant/bar business is a brutal one - all it takes is a slight dip in trade and unless you are in a position to respond quickly then...... Whilst personally I'm all in favour of assisting a business wherever possible nonetheless there is little point unless there is clear light at the end of the tunnel. All you finish up doing is kicking the can down the road.
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agent69
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Post by agent69 on Feb 25, 2016 17:59:42 GMT
New P & L projections uploaded to the docs section of the web site
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Post by mrclondon on Feb 26, 2016 12:07:12 GMT
New P & L projections uploaded to the docs section of the web site Thanks for the heads up.
I've looked at the 2016-17 forecast and have a few observations:
- the flat income is I think the separate self contained flats, not the rooms above the bar - which means the "hotel income" line and direct costs is combined bar + restaurant + basic rooms
As I said in an earlier post I don't rate the borrowers business acumen. Not breaking down the forecast into the 3 constituent parts of the business is poor practise, and is distinctly unhelpful when asking investors (i.e. us) to evaluate the revenue from a potential lease of the restaurant against current trading profits for the restaurant when the latter are not disclosed.
- the line for our repayments is showing c. £5,500 pm which is reflective of the proposal AC floated last week for a reduced 11% rate plus some capital repayments (and incidentally is equivalent to the interest only figure at current 15% rate).
However, even with this re-profiled loan from us, the business is still forecast to make a £11.5k loss over the 12 months to March 2017.
The AC proposal had around £1k pm of capital repayment, which clearly can not be serviced from the business profits so far from reducing the arrears, the forecast is the business can only afford 11% interest only to breakeven.
Which simply reinforces my view that the loan should be called in.
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SteveT
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Post by SteveT on Feb 26, 2016 12:55:57 GMT
If AC believe the business to be sufficiently robust to support a loan at a rate that justifies the current risk (and they maintain the original rate was higher than the original risk demanded, to secure sufficient lender commitment at the time) then the only reasonable approach is to launch a new loan and use the funds to repay the original lenders.
IF AC do NOT believe the business to be sufficiently robust to support a loan at a rate that justifies the current risk, then they should call it in and recover the maximum possible from the security.
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Post by Butch Cassidy on Feb 26, 2016 13:13:38 GMT
Whilst I am generally supportive of the position that this loan should be made affordable, with a combination of extended term, lower rate & capital reduction payments, as I didn't start P2P lending to drive SME's to the wall over a few extra ££'s ; This approach only seems fair if those who disagree, wanting to see the loan defaulted & called in, are given the option to exit/reduce their exposure - I personally favour allowing trading in virtually all circumstances (AC obviously disagree & prefer continued suspension, even though this destroys liquidity) so perhaps launching a fresh loan (with the benefit of lower rate) to repay the existing lenders would be the best approach & I would like to see holders given the option to vote on that proposal, thus avoiding having to put a potentially viable business into administration & also imposing exit penalties/discounts on exiting lenders.
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Mike
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Post by Mike on Feb 26, 2016 16:04:26 GMT
Making a loan affordable is one thing but back-dating affordability is another.
In principle, I dont think one should back-date interest rate decreases - particularly given the nature of the SM.
Regardless, I don't think this borrwer can afford any option so I voted C. The sooner this loan is demanded the better - it seems inevitable eventually.
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pikestaff
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Post by pikestaff on Feb 26, 2016 16:16:40 GMT
I am not happy with the stucture of the vote. There are two options to extend (A and B) plus option C to demand repayment. What happens if 30% of those voting choose A, 30% choose B, and 40% choose C? A clear majority will have chosen to extend but will C win? I will be voting for A as it maximises affordability while minimising the reduction in rate. I think our prospects of a full recovery will be greater if we give OneCall some time to work with the borrower than if we pull the plug now. Meanwhile it might help if lenders write some good reviews on TripAdvisor  ... |
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Post by mrclondon on Feb 26, 2016 16:20:10 GMT
Given my previous posts it will be no surprise I'm voting C.
£5k a month loan repayment is not affordable by the business as evidenced by the 2016-17 forecast uploaded yesterday. Whilst the OneCall initiative is a good idea, any recommendations they make are likely to require capital investment.
For the record I have been generally supportive of the strategies adopted by AC for handling the distressed loans, but attempting to keep this business afloat seems at odds with the information available as to the likelihood of success.
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mikeb
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Post by mikeb on Feb 26, 2016 18:13:22 GMT
Making a loan affordable is one thing but back-dating affordability is another. In principle, I dont think one should back-date interest rate decreases ... unless of course lenders can start agree to back-dated interest increases on other loans where the borrower can afford it. Symmetric. Growth. Together. Currently it seems that we can be asked to "agree" to weaker-than-agreed-previously positions. But not the other way.
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