M********* V***** CHP (Abu)

The secrecy and lack of transparency surrounding this loan make it very difficult to trust what we are now being told, and what is proposed. 

If it is true that the refused accreditation was an 'error' by Ofgem, why is a claim not being made against them for the close of the business etc? The MV directors say they have no plans to do this "at the moment" (does that mean ever?) because it would be a costly lengthy process. And with no guarantee that our money would be returned, no doubt.
Converting our investment from a 1-year debenture paying 12% to a 18-year debenture paying 5% is also a costly lengthy process, giving a much poorer return to investors over a very long period, and with no guarantee that our money will be returned. And we are being asked to inject additional capital.

Whose interests are being served?

I can see many others taking that view. Unfortunately if the extra £650000 isn't thrown into the kitty, there is no long term offer. Brexit analogies abound, there is no good way out of here.

To the yes voter, time is of the essence, the sooner the boilers are restarted the sooner they generate a return.

M****w V****y CHP is asking us to raise a further £650000 in addition to the £3.9 mn we have already invested. I don’t have visibility of what has happened to the other M****w V****y debentures so I’ll stick for present purposes to CHP.

M****w V****y CHP is telling us that on the proposed repayment schedule we will receive an aggregate rate of return of 5%. I have run the figures through a spreadsheet and I can confirm that 5% in aggregate is calculated as from 1st January 2019 (sic) right up to 31st December 2036 so it includes the initial fallow 18 months in which we don’t see a penny of return and what is more our debentures are distinctly unmarketable at anything approaching face value. Now if we assume that A*******e is taking its customary 1% per annum and waiving its 5% up front on the additional funds, M****w V****y is paying 6% pa over the 18 years of the loan, plus an additional 1% on the £650000 (=£6500). 6% of £4.55 mn is £273000 per annum. So the value M****w V****y is placing on the aggregate loans from the debenture holders is (£273000 + £6500) £279500 per annum.

M****w V****y CHP is using known technology and its managers have expertise within the field so from a purely commercial point of view it looks like low risk investment. However, we know it to have experienced regulatory difficulties. We also know that is over 50% subsidy dependent and while it is not reasonable to expect the subsidy regime to alter from year to year it is equally unreasonable to expect the subsidy regime to remain constant over the next 18 years. Governments and policies will change. The key plant over which we have a debenture consists of a battery of reciprocating engines which cannot last for ever. They must require maintenance and replacement at some time. A business which is struggling to repay its debt and needs 18 months fallow to get back to profitability is unlikely to be making provision to recapitalize its plant. The investment must be regarded as one of high risk, because there is ample scope for things to go wrong while there is no upside beyond the possibility of the debenture holders getting their money back with a little bit of interest after twenty years.

It is interesting to note that the deferred repayment schedule selected by the directors of M****w V****y shifts the burden of the risk onto the debenture holders who provide funding but receive nothing if the the firm fails within the next two years.

Let’s say for purposes of argument that the additional fund-raising fails to raise anything like the £650000. What happens next? The plant in a fire sale is worth very little. It is worth far more to the business. How much would a rational investor pay for the plant? How much would it pay to take over the plant to lend M****w V****y CHP the funds to continue in business?

In my ignorance, I suggest that a rational commercial investor e.g the owners of the nearby business park, would want a return from a high risk investment like this of a minimum of 12.5% per annum and it would want it now, not at some time in the distant future. It would also want to recover its capital reasonably promptly particularly given the fact that one sixth of it is pure start up funding to get the business going again. I suggest that the maximum time in which an investor would want to recover the loan would be twelve years. For the calculation which follows I am going to ignore the eighteen month fallow period proposed by M****w V****y, though that would leave something of a revenue crisis in year one, 2019.

According to my spreadsheet, at an interest rate of 12.5% pa over twelve years £279500 per annum would amortize a principal sum of £1.69 mn. So the cavalry could ride to the rescue with an offer for the assets of the business of £1.69 mn, but of that £1.69 mn, £0.65 mn is the new start up funding required by the business leaving a mere £ 1.04mn to pay the debenture holders. Calculated in this way, and I am more than happy to be challenged on my assumptions or arithmetic, M****w V****y CHP is valuing the plant at £ 1mn or roughly 26 p in the £1 for the existing debenture holders.

I am lucky to have nothing invested in the C*P and not much in the B**m**s debentures.
It's a stain on an otherwise good record from A***d***e and to be honest - there's a lot worse P2P lender out there!

Good questions, to which I doubt there are any good answers.