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Post by jevans4949 on Dec 10, 2013 20:21:17 GMT
The people keen to invest in this loan have bid already. Bids will now trickle in slowly for a while. If the loan gets to the point of being 80+% funded, those trying to avoid idle money will be forced to act, and the loan will become fully funded. If 80% isn't reached as the end of the offering period, then bidding will slow to a crawl unless an underwriter is brought in. Having said that, though, bringing in an underwriter hasn't exactly made a lot of difference to the Redditch loan that's been stuck at about 50% funded for about a week. Either bids will flood in at the last minute or the underwriter will be left carrying a large chunk of that loan for a while before they can start unloading it. I have set myself a limit on how much I will lend to any one case. Probably other lenders do the same; the limit will vary according to the individual's total wealth and their commitment to the particular P2P platform, as well as their assessment of the risks presented. Given that Assetz has a limited, though growing, number of investors, this makes it fairly easy at present to raise around £150k without additional effort by Assetz to find large investors or underwriters. (As we've seen recently, loans smaller than this are filled pretty quickly.)The presence of the underwriter probably gives confidence to lenders, in that it removes the likelihood that the auction will fail, and shows that there is somebody who thinks it's worth the risk.
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andy2001
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Post by andy2001 on Dec 10, 2013 20:44:13 GMT
They have now agreed not to dilute the equity in there property to make the loan a bid safer.
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bugs4me
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Post by bugs4me on Dec 10, 2013 22:55:24 GMT
They have now agreed not to dilute the equity in there property to make the loan a bid safer. I would feel more comfortable if there was a second charge in place on their property. A lot can happen over 5 years as we all know.
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mikes1531
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Post by mikes1531 on Dec 11, 2013 2:15:48 GMT
I would feel more comfortable if there was a second charge in place on their property. A lot can happen over 5 years as we all know. They have added a bit more of a answer to the question I asked. They said... I've never come across a 'negative pledge clause' before, but if it inhibits the owners from allowing anyone else to place a second charge on their property then it might produce a similar result. I suppose the main difference is that if Assetz had a second charge then they could force the foreclosure of the property and be second in the queue for the proceeds from the foreclosure sale, whereas the new clause still would let the owners to arrange a second charge. That would then trigger a default of the Assetz loan and Assetz would have to first liquidate the pledged equipment and if that didn't realise enough money then Assetz would have to call on the personal guarantee, which probably would put them on an equal footing with other creditors and behind the holder of the newly created second charge. And the lawyers would be the winners! On balance, I'd have to agree -- a second charge on the property would provide a lot more security than the negative pledge clause.
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bugs4me
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Post by bugs4me on Dec 11, 2013 9:21:37 GMT
I've never come across a 'negative pledge clause' before, but if it inhibits the owners from allowing anyone else to place a second charge on their property then it might produce a similar result. I suppose the main difference is that if Assetz had a second charge then they could force the foreclosure of the property and be second in the queue for the proceeds from the foreclosure sale, whereas the new clause still would let the owners to arrange a second charge. That would then trigger a default of the Assetz loan and Assetz would have to first liquidate the pledged equipment and if that didn't realise enough money then Assetz would have to call on the personal guarantee, which probably would put them on an equal footing with other creditors and behind the holder of the newly created second charge. And the lawyers would be the winners! On balance, I'd have to agree -- a second charge on the property would provide a lot more security than the negative pledge clause. The problem is and this is me being negative about the answer is they cannot prohibit someone else from placing a second charge against the property if the worst came to the worst - a creditor for example where they had a personal guarantee. A second charge could also be applied for a debt incurred outside of the business. So whilst they have agreed not to dilute the equity then it may be outside of their control.
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mikes1531
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Post by mikes1531 on Dec 11, 2013 16:26:54 GMT
The problem is and this is me being negative about the answer is they cannot prohibit someone else from placing a second charge against the property if the worst came to the worst - a creditor for example where they had a personal guarantee. A second charge could also be applied for a debt incurred outside of the business. So whilst they have agreed not to dilute the equity then it may be outside of their control. I wouldn't have thought that someone could place a second charge on a property without the owner's consent, but I'm really out of my depth with an issue like this. What I can see, however, is that the owners could give a personal guarantee to Assetz and to any number of other people as well, all based on the same property equity. All of their creditors then might think they have security when, in fact, they have only a fraction of the security they thought they had. With a second charge, nobody else could have that, so it provides much better security. I'm rapidly coming to the conclusion that others here -- and elsewhere -- have already noted, and that's that PGs might be nice to have, but if the guarantor gets into enough financial difficulty that a creditor needs to call on the PG, chances are that the value of the PG will be rather small, and therefore the PG doesn't really provide much security at all.
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Post by andrewholgate on Dec 11, 2013 16:39:41 GMT
A negative pledge clause is a standard clause in many agreements that stops the borrower from purposefully worsening the security position of the incumbent lender. Should the borrower do this, not only are they liable and defaulting their agreement, but the new secured lender could be forced to relinquish their security in favour of the incumbent lender. The loan contract also states if they default with any lender then they default with us. I know other lenders have similar clauses.
So, not only would the borrower default our loan, they would immediately default the new loan and become liable to repay both loans immediately with security ranked in our favour.
I hope that helps.
Andrew
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bugs4me
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Post by bugs4me on Dec 11, 2013 16:45:28 GMT
The problem is and this is me being negative about the answer is they cannot prohibit someone else from placing a second charge against the property if the worst came to the worst - a creditor for example where they had a personal guarantee. A second charge could also be applied for a debt incurred outside of the business. So whilst they have agreed not to dilute the equity then it may be outside of their control. I wouldn't have thought that someone could place a second charge on a property without the owner's consent, but I'm really out of my depth with an issue like this. What I can see, however, is that the owners could give a personal guarantee to Assetz and to any number of other people as well, all based on the same property equity. All of their creditors then might think they have security when, in fact, they have only a fraction of the security they thought they had. With a second charge, nobody else could have that, so it provides much better security. I'm rapidly coming to the conclusion that others here -- and elsewhere -- have already noted, and that's that PGs might be nice to have, but if the guarantor gets into enough financial difficulty that a creditor needs to call on the PG, chances are that the value of the PG will be rather small, and therefore the PG doesn't really provide much security at all. You don't need the owner's consent. The creditor simply applies to the County Court as a way of securing the debt - usually a personal loan default or credit card, etc. The other problem I have is the value of the company assets bearing in mind we're looking at a 5 year loan here and I frankly have no idea what the value of pre-owned specialist optical equipment is worth especially 3 or 4 years down the line. Plus if you loose a major client then there will be no debtor book worth capturing. I asked the question on the AC site and the response was if they did allow a second charge on their property then they would require a lower cost loan. Personally that would be more acceptable to myself than what is being currently offered. If the borrowers were more confident then surely they would want the lower cost of the loan. Or is it just me muddying the waters?
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bugs4me
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Post by bugs4me on Dec 11, 2013 16:59:48 GMT
A negative pledge clause is a standard clause in many agreements that stops the borrower from purposefully worsening the security position of the incumbent lender. Should the borrower do this, not only are they liable and defaulting their agreement, but the new secured lender could be forced to relinquish their security in favour of the incumbent lender. The loan contract also states if they default with any lender then they default with us. I know other lenders have similar clauses. So, not only would the borrower default our loan, they would immediately default the new loan and become liable to repay both loans immediately with security ranked in our favour. I hope that helps. Andrew '....purposefully worsening the security position....' - I would have thought that proving that in a Court of Law would be like finding hen's teeth. No doubt though you are more versed in this than myself Andrew.
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andy2001
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Post by andy2001 on Dec 11, 2013 17:05:24 GMT
A negative pledge clause is a standard clause in many agreements that stops the borrower from purposefully worsening the security position of the incumbent lender. Should the borrower do this, not only are they liable and defaulting their agreement, but the new secured lender could be forced to relinquish their security in favour of the incumbent lender. The loan contract also states if they default with any lender then they default with us. I know other lenders have similar clauses. So, not only would the borrower default our loan, they would immediately default the new loan and become liable to repay both loans immediately with security ranked in our favour. I hope that helps. Andrew '....purposefully worsening the security position....' - I would have thought that proving that in a Court of Law would be like finding hen's teeth. No doubt though you are more versed in this than myself Andrew. I'm not sure that's true. Sounds like it would be fairly easy.
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Post by andrewholgate on Dec 11, 2013 17:05:49 GMT
Technically, not true. To place a second legal charge on the property you need the consent of the property owner AND the prior charge holder. The prior charge holder is likely to hold a negative pledge clause so any second charge would default the prior facility immediately if the prior holder doesn't consent. The County Court can judge that a borrower is due to make a payment, but it can not agree to a second charge to be placed for the reasons stated above (ie the prior charge holder). A CCJ just means your debt is recognised and may place you a bit further up the pecking order in the bun fight to get your cash back. The Court could put in place a charging order on a property but this simply allows for any surplus from any prior charge holders being paid off to go to the beneficiary of the charging order. The charging order does not give any rights to appoint receivers or force a sale by the beneficiary, it just ranks them higher up the food chain in the bun fight. To enact a charging order you have to go back to court to get a sales order. The prior charge holder then steps in to handle the sale of the property, acts in their own interests and gets their cash back and give no thought to anyone else.
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Post by andrewholgate on Dec 11, 2013 17:07:48 GMT
In simple terms, it is easy to prove. You signed our agreement on DD MMM YY but then subsequently agreed to new debt/charge on DD+ MMM+ YY+. Simple to prove. Knowing that they have done it... |
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mikes1531
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Post by mikes1531 on Dec 11, 2013 17:11:48 GMT
Yes, it does. Thanks. I'm learning! I asked the question on the AC site and the response was if they did allow a second charge on their property then they would require a lower cost loan. Personally that would be more acceptable to myself than what is being currently offered. If the borrowers were more confident then surely they would want the lower cost of the loan. Or is it just me muddying the waters? I think it's a good point, and makes me wonder whether they've given other PGs, though if they have other PGs they can't have a negative pledge clause in those because giving Assetz a PG would trigger a default on their other PG'd loans. Perhaps Assetz told them that allowing a second charge might get them faster funding but it wouldn't get them a lower rate here, so they've opted to see how far they get without one. If the loan isn't fully funded or underwritten they'd obviously have to rethink. I'm definitely in over my head here!
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Post by andrewholgate on Dec 11, 2013 17:13:20 GMT
mike1531 - Keep asking us questions. It will always be your decision whether to invest, I can only guide you on the technical points. If you are still worried, please see an IFA.
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bugs4me
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Post by bugs4me on Dec 11, 2013 17:20:17 GMT
I'm definitely in over my head here Not at all. I think though that you just have to take things as they are presented with a few Q&A's. Then it's your decision. If you're not comfortable then walk away. If you are then.....
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