Liquidity Event (GS)

I thought so. Little bit different to what's in there now? Nothing about altering lenders reinvestment settings to "reinvest all" back then.

Although to be fair that is a 8 months ago. I do check the T&C's every so often though, and I hadn't seen this in there until they used it. Probably 6 months or so since I checked them last time though.

If they just added this part on Feb 19th and executed it March 16th, that is very naughty and could be seen as a bit underhanded. Didn't give investors time to withdraw capital if they didn't agree to the new T&C's. 

Let's hope they don't next week decide to add & execute the clause "if things get really bad, investors money will be used to motivate staff by buying them brand new M5 BMW's" 

Dear Investor,

From everyone here at Growth Street, we hope you and your families are safe and well during this difficult time.

Firstly, we would like to thank all of our investors again for your continued support and patience. We recognise that there will be uncertainty, but we believe that being transparent and keeping our investors informed about developments is absolutely crucial.

Over the last seven days, we have received a number of questions from investors, and today we want to share the answers to some of the most common. We will focus on more details about the Liquidity Event, including why we made the decision to call it, what it means for you, and how our platform at Growth Street is different to other peer to peer companies.

How is our exchange different to other peer to peer companies?

During these adverse market conditions, you may have seen other peer to peer companies offering a queuing system for you to withdraw your investments. One such way is by offering a secondary market. Instead of building a secondary market (which is commonly associated with term-length loan exchanges), we built a unique product that offers benefits to both borrowers and investors, through a single, continuous exchange of multiple 30 day loans.

Our GrowthLine facility is made up of sequential 30 day loans which allows borrowers to access a revolving line of credit rather than a fixed-length lending product like a term loan or invoice finance. Borrowers are not required to repay their loan after each 30 day loan matures, instead, at the end of the 30 days, a new loan agreement is automatically generated, allowing borrowers to continue borrowing. When this happens, your investment is refinanced by another investor's money, allowing you to withdraw your investment and the principal interest earned (if you choose). If you have your reinvestment settings turned off, in normal market conditions, we register your intent to not reinvest at the end of your 30 day investments, rather than “queuing” withdrawal requests. Your funds are returned to your holding account when the 30 day period is up.

Why did we call a Liquidity Event?

During normal market conditions, an investor can withdraw their investment by switching off their reinvestment settings and waiting until the loan matures (up to 30 days). After maturity, our exchange will automatically match queued lend orders to refinance your outgoing investment, allowing for money to be transferred to your holding account, where it can be withdrawn from our platform.

In the last six weeks we have seen unprecedented adverse market conditions, which caused a spike in reinvestment settings being switched off and a drop in the number of lend orders. This activity resulted in a shortfall of sufficient liquidity on the exchange to refinance outgoing investments. We had a duty to step in and take control of the situation in order to continue serving the financial agreements we have with our borrowers. By doing so, we had to stop investments rolling off the exchange. This is called a Liquidity Event, which can last a maximum of 90 days.

The Liquidity Event was called as a direct result of heightened investor activity in response to COVID-19 and its impact on markets around the world. It was not a result of borrower performance. We are actively monitoring our borrowers and remain confident of the performance of our loan book. We will keep you updated on our portfolio assessments throughout the liquidity event.

What does this mean for you?

Any funds in your holding account at the time the Liquidity Event were and still are available to withdraw
Your reinvestment settings are set to automatically reinvest principal and interest and cannot be altered
You can no longer cancel any outstanding lend orders
New investments have been suspended
Existing investments will continue to accrue interest
By making these updates we can ensure that the exchange maintains sufficient liquidity for the loans reaching their 30 day term to be refinanced, either through unmatched lend orders or using the same funds.

Is Growth Street writing new loans?

A number of you have asked if we are writing new business. We want to confirm that Growth Street is NOT accepting any new borrowers on the platform at this time and we are NOT writing loans for new borrowers.

The exchange works on a continuous cycle of 30 day loans; even if a borrower has not drawn down more capital within their facility limits, investor funds on the exchange will be placed into ‘new’ 30 day loans with existing borrowers. Whilst borrowers use their revolving credit facility they are not required to make full capital repayments each time their outstanding 30 day loans reach maturity. Therefore, new loans must be generated to replace them. It is these newly generated loans that your funds are being re-invested into.

What happens if the Liquidity Event is not resolved?

If there continued to be insufficient funds to refinance investors, then investments could remain locked in. Therefore, if the Liquidity Event is not resolved at the end of 90 days, all of our borrowers will be asked to make repayments of both capital and interest, in order to finance investor withdrawals. This is called a Resolution Event. In that event, we work to return all capital and interest to investors as quickly as possible while maximising your return. However, you may not get back your entire investment, which also includes any interest earned. More information about a Resolution Event can be found in the Investor Terms on our website.

Finally, we appreciate the support that you have shown during this difficult period. We value your input and we will endeavour to work toward a solution for the situation we find ourselves in as a result of COVID-19.

Kind regards,
Kim Goetzke, Chief Operating Officer

I would agree

When I first read the email I was surprised it didn't contain some additional contingency thinking.

Since then I had considered maybe setting out such a stark outcome early would give people time to reflect, then when a compromise solution was offered it would be more warmly received. Hopefully I am not overestimating them.

Not sure they contribute here at all? Maybe an invite should be extended. 

I think they do have some scope to continue lending during the resolution event. Here is a section from their Ts&Cs (my bold):

"6.7. GSP is free to use funds held in the LLP and/or funds collected from borrowers during a Resolution Event to fund expenses or other payments which it reasonably believes will maximise the probability of borrower repayment, whilst also ensuring borrowers continue to be treated fairly during the collect out process. For example, funds held are likely to be used to fund recovery action against defaulted borrowers and may also be used to fund new drawdown requests if it is determined that a failure to fund the request will materially impact the borrower’s ability to (1) continue trading, (2) repay their facility, or (3) re-finance."

Presumably they can keep lending under this clause until the borrower can obtain alternative finance,  but it's fairly clear that once a resolution event is triggered the platform is in terminal wind down. I guess they would be free to restart with new funds, but it would be a hard task to raise those funds following a failure, even if all funds were recovered,  which seems very unlikely. 

Could it be meant that they will follow the formal procedure as per their T&C and then will be dealing with borrowers case by case???  But, yes, it does sound harsh considering current situation. Every other platform I'm in had a very different tone in their communications with regards to borrowers.

It also reads to me as a wind down notice, but I might be wrong.

What I cannot understand from the update is how do they even expect liquidity to improve when investors are no longer allowed to add any new funds. Stopping new lending - makes sense. Not allowing more money on the platform - this is not helping. I am referring to “what does this mean for you” point 4 (New investments have been suspended)

So seems like we have some tough times ahead as resolution event looks imminent. I really hoped they will pull something out of the hat - deals they have with Starling bank etc. were really promising for the GS future, but seems like we will be in a wind down in 3 months time...

Like everyone here I too am concerned with the communications from Growth Street which seem to indicate they are working towards a Resolution Event. I sincerely hope this is not the case and they instead have alternative plans. I'm posting the email I sent to them which is yet to receive a reply - will let you know if I do receive anything.

====

Hello Growth Street


I am concerned about the recent communications you have sent to investors in regards to the Liquidity Event:



1. You have not provided any feasible alternatives or areas of exploration to avoid a Resolution Event. This is concerning because your messages seem to convey you are working towards the assumption that a Resolution Event will be called - this is not in the interest of anyone and should be a last resort.


2. 90 days or collapse. The Liquidity Event lasts for 90 days and if not resolved will then enter a Resolution Event. This timescale seems wholly unfeasible given the current financial climate due to Covid-19. I would expect markets to take longer to gain investor confidence than 3 months. What measures are you actively exploring to realistically work towards this timeframe?


3. Complete lock of capital, interest and bonuses. In comparison to how other P2P platforms are handling this situation - the majority are allowing withdrawals (Ratesetter, Assetz Capital, etc) however they are doing so at a slower rate and in a priority based queue. Your approach is a complete lockdown of money on your platform which further reduces investor confidence. Could you elaborate on specifically why you have taken this different approach as compared to other P2P platforms. Also have you considered your platform was designed and marketed on the basis of providing near-instant access within 30 days to funds – will this have a long-term impact through limited investor confidence in your platform moving forwards?





I have some suggestions in regards these concerns:


1. Provide more transparent communication on areas you are exploring to solve the liquidity issue. Is this through new funding, if so how? Incentives? Improving investor confidence, if so through what measures?



2. This for me is the most concerning one. You have essentially put a ticking time bomb on yourself to resolve this in 90 days which simply doesn't look feasible. You need to consider an extension of the Liquidity Event, possibly up to a year to allow markets to stabilise and investor confidence to return, in addition to the below:


3. This can be resolved by allowing withdrawals but in a CONTROLLED manner - e.g. you allow investors to withdraw a maximum of 5% of their capital and/or interest per month for their portfolio. This provides you with time for you to find alternative funding and have a projection of the worst case scenario. More analytics and predictability = a better outcome for all. You could also offer incentives for investors to stay e.g. by increasing interest rates, bonuses, cashback, etc. These could be long-term bonuses (to keep money on the platform) e.g. “a retention scheme bonus” payable in one year if you keep money on the platform.



In addition to the above, you should also be exploring:



* Reducing the loanbook size by talking to companies and seeing if they are able to make use of government-backed loans rather than through Growth Street. This in turn will improve the liquidity issue.

* Government backing for P2P platforms. You are now FCA regulated which means you should be seeking support from the government. There are established schemes run by the BoE that pump liquidity into the system in the event of these situations.


I'm sure you have other ideas but my overall message here I want to get across is:



* Do not default to a Resolution Event. Avoid at all costs.

* Seek alternative ways, ideas, new systems, methods, etc.

* Open up withdrawals gradually and in a controlled, predictable manner.

* More transparent communication about how you are looking to resolve this.


Many thanks


Gary