arby
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Post by arby on Feb 1, 2019 17:20:58 GMT
So FS received funds from sales of 3 of the 5 completed properties, and they chose to repay the oldest loans first, which includes various supplemental tranches, while leaving other higher-ranking, but still overdue, loans open. I am in those higher ranking loans and it seems there are ongoing issues with the sales of the last 2 properties. While I have little doubt they'll be sold and the money is safe, I'm wondering what FS would do in case of default? And yes, I'm fully expecting lots of answers to be "they'll do nothing"  |
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SteveT
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Post by SteveT on Feb 1, 2019 17:40:24 GMT
Not the first time they’ve done so either. It was their decision to prioritise older tranches over the ranking overdue tranches of the L.St.Annes loan that led me to hit the Exit button. If you cannot trust that ranking priority will be observed correctly when a loan is non-performing then you have no way of assessing the risk of loss given default.
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locutus
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Post by locutus on Feb 1, 2019 19:12:25 GMT
This is definitely frustrating but what is the solution? Unless I have missed something, in default, FS comply with the stated priority of tranches. However, if the loan has not defaulted, then the borrower is free to repay in any order they wish and often chooses to pay the more expensive/higher interest/lower ranking tranches first.
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SteveT
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Post by SteveT on Feb 1, 2019 19:32:31 GMT
This is definitely frustrating but what is the solution? Unless I have missed something, in default, FS comply with the stated priority of tranches. However, if the loan has not defaulted, then the borrower is free to repay in any order they wish and often chooses to pay the more expensive/higher interest/lower ranking tranches first. It's their definition of what constitutes a "default" that's the issue. When ranking loan tranches are already well overdue for repayment then they have to be regarded as non-performing by any reasonable definition. Yet FS are happy to renew or repay "longer over-running" tranches whilst ranking ones carry on "continuing to accrue interest". The L.St.Annes 1st Facility 1st Tranche (1987161194), which should have been first in line for renewal using the additional £100k 5th Facility that was raised back in June, is now up to 446 days and counting. Still not defaulted by FS though !!
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locutus
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Post by locutus on Feb 1, 2019 19:36:12 GMT
It's their definition of what constitutes a "default" that's the issue. When ranking loan tranches are already well overdue for repayment then they have to be regarded as non-performing by any reasonable definition. Yet FS are happy to renew or repay "longer over-running" tranches whilst ranking ones carry on "continuing to accrue interest". The L.St.Annes 1st Facility 1st Tranche (1987161194), which should have been first in line for renewal using the additional £100k 5th Facility that was raised back in June, is now up to 446 days and counting. Still not defaulted by FS though !! In that case, I certainly agree with you. Did you complain to FS and did they respond? A clarification around this area would be very welcome from FS.
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Post by mrclondon on Feb 1, 2019 19:38:25 GMT
This is definitely frustrating but what is the solution? Unless I have missed something, in default, FS comply with the stated priority of tranches. However, if the loan has not defaulted, then the borrower is free to repay in any order they wish and often chooses to pay the more expensive/higher interest/lower ranking tranches first. I don't think the borrower has visibility of the tranches, to them its simply a loan facility, the underlying management of which is upto FS.
Hence it is FS who decide how to allocate funds (renewal interest or capital) received from the borrower or funds raised (and retained) from new tranches. You are right that the handling of defaulted loans seems to reflect the ranking, but for non-defaulted loans the oldest (overdue) tranche gets the cash irrespective of ranking.
I think what is being argued for here is a slight change to the methodology such that its the oldest (overdue) tranche of the highest ranking loan that gets the cash. Argugably it should as you imply be the oldest (overdue) tranche of the highest lowest ranking loan that gets the cash if that is a higher cost to the borrower (treating the borrower fairly etc), but what doesn't feel right is the ranking of the loan is ignored in deciding which tranche receives interest and is renewed.
(cross-posted with previous two posts)
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baldpate
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Post by baldpate on Feb 1, 2019 19:39:49 GMT
What I most object to about FS's policy re the repayment by partial sale of multi-tranche, non-defaulted loans is the fact that they seem to allow the borrower to take part of their profit from the early sales - i.e. not the whole of the sale realisation goes to paying down debt, rather just sufficient that the original LTV on the residual debt is maintained. Setting aside the issue of how the repayment should be distributed, it doesn't seem right to allow the borrower to take out any money before all debt is repaid (thus effectively treating them as having a higher priority than any secured lender).
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SteveT
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Post by SteveT on Feb 1, 2019 19:53:42 GMT
It's their definition of what constitutes a "default" that's the issue. When ranking loan tranches are already well overdue for repayment then they have to be regarded as non-performing by any reasonable definition. Yet FS are happy to renew or repay "longer over-running" tranches whilst ranking ones carry on "continuing to accrue interest". The L.St.Annes 1st Facility 1st Tranche (1987161194), which should have been first in line for renewal using the additional £100k 5th Facility that was raised back in June, is now up to 446 days and counting. Still not defaulted by FS though !! In that case, I certainly agree with you. Did you complain to FS and did they respond? A clarification around this area would be very welcome from FS. I protested to FS the moment they announced that a 3rd ranking tranche was to be renewed first, before it went live (they'd previously promised they'd be following ranking priority) Given the urgency, I also phoned FS and Richard L (IIRC) called me back the same morning. The renewal initially was pulled, then FS thought about it for another 6-8 weeks, then proceeded to renew the 3rd ranking tranche anyway, followed by 2 or 3 others. Then the additional money ran out, so the 1st ranking tranches could not be renewed. I've not yet registered a formal complaint since I've yet to suffer any definitive loss, but I sure will be if it doesn't repay capital and interest in full (eventually).
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Godanubis
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Post by Godanubis on Feb 1, 2019 20:15:18 GMT
Prudent loan repayments are always pay the more costly first.
Only if all loans were defaulted simultaneously would the ranking be followed. As it says ranking is applied if loan defaults.
What triggers the default is the contentious issue.
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locutus
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Post by locutus on Feb 1, 2019 20:26:55 GMT
Prudent loan repayments are always pay the more costly first. Only if all loans were defaulted simultaneously would the ranking be followed. As it says ranking is applied if loan defaults. What triggers the default is the contentious issue. A fair compromise would be if the loan is overdue by even a single day, then even if not defaulted, the repayment priority should be adhered to.
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arby
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Post by arby on Feb 1, 2019 20:28:24 GMT
I know the talk about renewal order was done previously, and I believe this situation is a little different, namely that the first ranking loans used to be secured against 5 properties, but now they're only secured against 2. 3 properties have been sold and proceeds have paid off higher ranking loans. In effect, the LTV on the first ranking loans has potentially increased. That's my point, unless I'm mistaken, which I wouldn't rule out... |
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locutus
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Post by locutus on Feb 1, 2019 20:30:23 GMT
What I most object to about FS's policy re the repayment by partial sale of multi-tranche, non-defaulted loans is the fact that they seem to allow the borrower to take part of their profit from the early sales - i.e. not the whole of the sale realisation goes to paying down debt, rather just sufficient that the original LTV on the residual debt is maintained. Setting aside the issue of how the repayment should be distributed, it doesn't seem right to allow the borrower to take out any money before all debt is repaid (thus effectively treating them as having a higher priority than any secured lender). What if the developer uses funds from sales to pay down capital/interest but also requires them to continue the development? If he uses all his sale proceeds to pay off the loans, he'll have to take out new loans to finish the development. This issue seems less clear cut to me.
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Godanubis
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Post by Godanubis on Feb 1, 2019 20:43:15 GMT
What I most object to about FS's policy re the repayment by partial sale of multi-tranche, non-defaulted loans is the fact that they seem to allow the borrower to take part of their profit from the early sales - i.e. not the whole of the sale realisation goes to paying down debt, rather just sufficient that the original LTV on the residual debt is maintained. Setting aside the issue of how the repayment should be distributed, it doesn't seem right to allow the borrower to take out any money before all debt is repaid (thus effectively treating them as having a higher priority than any secured lender). What if the developer uses funds from sales to pay down capital/interest but also requires them to continue the development? If he uses all his sale proceeds to pay off the loans, he'll have to take out new loans to finish the development. This issue seems less clear cut to me. The purpose of the loans would be detailed in the terms deviation is actually as bad as mortgage fraud. Or borrowing from Tesco for a new car at 3% and investing in P2P at >10%
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Godanubis
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Post by Godanubis on Feb 1, 2019 20:44:57 GMT
Prudent loan repayments are always pay the more costly first. Only if all loans were defaulted simultaneously would the ranking be followed. As it says ranking is applied if loan defaults. What triggers the default is the contentious issue. A fair compromise would be if the loan is overdue by even a single day, then even if not defaulted, the repayment priority should be adhered to. That is a nice wish but totally impracticable for property/development loans.
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dApps
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Post by dApps on Feb 1, 2019 21:06:18 GMT
A fair compromise would be if the loan is overdue by even a single day, then even if not defaulted, the repayment priority should be adhered to. That is a nice wish but totally impracticable for property/development loans.Why? (Edit: within the context of multi-tranche loans on FS, which I think is what this discussion is about.)
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