Best exit strategy

I can't see that someone having had a Lendy IA millstone round his neck for a few hundred days and deciding to offer it at any discount would flip me into a feeding frenzy. No doubt  there are some fans out there squirming in anticipation though. I'm okay with that. They know their capital may be at risk, right?

I’d like to buy at a discount.

As reminder of how long people might need to sit tight on these loans, this post on the AC subforum is useful link.

In late 2013 to ramp up their origination volumes, AC did a number of large (at the time) 6-month bridge loans, all paying 12%. Every single one of them defaulted. Now some of these loans have recovered, some at par, others at a haircut. Some, however, are still in recovery ... 4 years after they should have redeemed. Moreover, these were just bridge loans, not speculative development loans, and as such are far simpler. The costs racked up over that period are, unsurprisingly, rather large.

As a side point, I'd also note the AC default rates for their 2013 and 2014 loan cohorts are 43% and 33%, respectively (AC's numbers are weighted by loan capitalization so these big bridges dominate their default numbers for those years). Not exactly miles away from where the SS numbers are now. It's sort of deja vu. This isn't an attempt to absolve SS of blame, since AC screwed up big time on the bridges and SS has done the same of many development loans. Both platforms' greed for a rapid rise in origination volumes resulted in them leaving investors with some fairly toxic loans. If you want, however, a positive spin on this, then AC did change their model to some degree on the back of this lesson and we can see that their default stats improved over the 2015 and 2016 loan cohorts (the 2017 cohort is not seasoned enough to be useful).

You are compeltely correct but I was trying this week to avoid mentioning that investors need to take personal responsibility for their lending decisions and not everything can be blamed on the platform/borrower/financial services industry. Oops ... just did. Oh well, I will just have to try harder next week.

That’s a really useful comparative.

Lendy has obviously gone from hero to zero pretty quickly in the eyes of a lot of investors. The Lendy brand image, judging by forum comments, which I share, couldn’t get any worse. Was AC able to shake off the damage of 43% and 33% defaults rates? Did money keep flowing into new investments even after their brand took a beating? I don’t invest in AC nor follow their progress so I’m genuinely interested how they managed to stay in business following such disastrous performance.

AC suffered from the usual cycle on this forum. Early on posters put the platform on a pedestal given the high rates, friendly comms and no defaults, followed by the inevitable fall from grace once the defaults start rolling in. So the default of the bridge loans knocked them off that pedestal but they had some advantages vs. SS. First, because all the defaulting bridge loans came from a single broker, they were able to ring fence the issue to some degree. They could pass the blame on to the broker and, by promising not to use them again, they could argue that this situation would not repeat (which to be fair it hasn't). Second, while the bridge loans were large relative to their portfolio when they were orginated, by the time AC went for recovery (after a couple of rounds of extend and pretend etc), they had moved their model more toward doing larger numbers of smaller loans (plus they were adding other products like the GBBA, QAA etc). So for many investors, the size of their positions in the problem bridges was smaller. Finally, I'd say that AC never got placed on as high a pedestal as SS, so they never had as far to fall.

I think the point for me is that while I think SS has delivered some truly rotten loans, the reality is that other platforms have also delivered some rotten results at times aswell. Take TC, another secured loan provider that's been going since 2011. Their default rates are lower but their worst recoveries make SS look good They have had a number of secured SME loans recover at sub 10%, as all the security vapourized. They currently have a £9mm or so portfolio of defaulted loans from one borrower, with property security, where some holders could be looking at a recovery of effectively zero. TC also demonstrates how wide the return outcome can be for individual investors. While the average net returns over the past 5 years are still probably in the 6-7% territory (from weighted yields of around 11%), you've got investors that have generated 12%+ and others who are at -5%.