Coronavirus: Important investment update from Lending Works
Apr 6, 2020 15:25:59 GMT
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Post by Matthew on Apr 6, 2020 15:25:59 GMT
Dear all
I wanted to share the following which was also emailed to all investors this afternoon:
We have an important update about your Lending Works investment. Before providing this update, we would like to extend our best wishes to you, your family and your friends during this extremely difficult time. We also want to apologise we were unable to send this update to you sooner. We have been ready to announce this important update for several days but have been awaiting the necessary approvals to do so.
Important investment update
The coronavirus (COVID-19) outbreak has undoubtedly impacted all parts of society. With particular relevance to Lending Works, it has severely impacted the UK economy, particularly the credit and financial markets. This shock to the economy has caused great concern to all lending firms, including Lending Works, resulting in additional support being extended to borrowers, payment holidays being offered to eligible loan customers, credit models being significantly tightened and credit risk teams working hard to understand what medium and long-term impacts this crisis is going to have on credit performance.
At Lending Works, we faced an additional challenge. As a result of the stock market turmoil, which started to unfold on 9th March, approximately 7% of our retail investor customers requested early access to funds using our secondary market within a very short space of time. This, in turn, has created a queue of customers trying to exit their investments, which has placed a restriction on our ability to continue lending as we were before the COVID-19 crisis occurred. Furthermore, due to the current state of uncertainty, it has become extremely difficult to effectively assess customers' creditworthiness and affordability. This has clearly placed an unsustainable strain on the platform.
After working with our Board of directors, professional services advisors and the FCA, we have developed a solution to these challenges and this message is to inform you that we have now engaged this solution.
While developing this solution, our key considerations were:
The solution is a combination of two mechanisms, which are outlined below.
Part 1 - Normalisation Period
We are introducing a 90-day Normalisation Period, during which we will:
If you currently have a pending loan sale request, unfortunately, you will be required to wait until the Normalisation Period has ended. However, the order of the queued requests will be maintained once the Normalisation Period ends.
During the Normalisation Period, Lending Works will receive a pro-rated servicing margin of 2.0% p.a. of the outstanding loan portfolio to cover the overheads associated with servicing the portfolio. This servicing margin is required to ensure the platform remains sustainable and can continue to service the loan portfolio without interruption. As a result of the COVID-19 crisis, the platform’s revenue has dropped from approximately £0.75m per month to near-zero. We want to highlight that we have also implemented a significant cost reduction plan in the business during this period, within which approximately one-third of our team will be placed on furlough under the government's Job Retention Scheme, while the remainder will be taking a 20% salary reduction, including the founders and directors.
The Normalisation Period will last for 90 days, however, may be extended if there is still such material uncertainty in the economy - for example if the government's social distancing restrictions continue to be in force. The Normalisation Period has been added as a new section in our new Terms and Conditions.
We want to highlight that we have not taken the decision to enter into a Normalisation Period lightly, and we have explored all other possible options to avoid it. We understand that this step might cause you concern. We want to emphasise we have done this to protect your investment. By introducing these measures we can ensure that the platform continues to function as expected during these extraordinary times and when the Normalisation Period has ended we, and the rest of the world, will have a better understanding of the long-term effects of coronavirus on the economy.
Part 2 - Lender Rate Adjustment
The Lending Works Shield will continue to operate as normal and will continue to reimburse lenders for any loan repayment that borrowers are unable to pay. Given the uncertainty, though, it is near impossible to know what impact this crisis is going to have on the economy for the long term, or indeed on borrowers' ability to repay their loans over the short or long-term. On that basis, for our April 2020 update to our Lender Rate Adjustment mechanism, we will temporarily divert all interest repayments to the Lending Works Shield for all active cohorts (i.e. 2014 to 2020). Therefore, during the second quarter of 2020, retail investors will continue to receive capital repayments on their loans but will not be receiving interest.
Please note that diverting additional interest to the Lending Works Shield during Q2 2020 is not part of the new Normalisation Period mechanism. This action has been taken under the existing provisions (19.12 - 19.14) of our Lender Platform Terms and Conditions.
We have taken this extremely difficult step as we believe it is prudent to do so. It is impossible to accurately forecast the expected loss rates of a portfolio of loans in these conditions, especially considering how quickly this virus and the economic turmoil has engulfed the globe. We believe in such times of extreme market volatility that protecting your capital has to remain the number one priority.
The full analysis pack and update to our statistics pages is due in line with the existing timetable, which is 30th April. This analysis will reflect the expected annual return received by investors over the lifetime of the loans in their portfolio accounting for the reduced returns in Q2 2020.
Looking forward
It is our intention that the Normalisation Period and the reduction of lender returns both revert back to normal at the end of the 90-day period and in the July 2020 update to the Lender Rate Adjustment mechanism. Given there is so much uncertainty in the economy currently, though, we will update you on our progress each month during this period.
Summary
There is still a great deal of uncertainty in the economy and around the long-term impacts of the coronavirus on society, and we cannot predict what the ultimate outcome will be. What we can do, though, is to make sure we are as well prepared to protect your investment as we can be, and it is for this reason we have introduced these extraordinary measures.
Yours sincerely,
Nicholas, Matthew and Simon
CEO, CFO and Chairman
I wanted to share the following which was also emailed to all investors this afternoon:
We have an important update about your Lending Works investment. Before providing this update, we would like to extend our best wishes to you, your family and your friends during this extremely difficult time. We also want to apologise we were unable to send this update to you sooner. We have been ready to announce this important update for several days but have been awaiting the necessary approvals to do so.
Important investment update
The coronavirus (COVID-19) outbreak has undoubtedly impacted all parts of society. With particular relevance to Lending Works, it has severely impacted the UK economy, particularly the credit and financial markets. This shock to the economy has caused great concern to all lending firms, including Lending Works, resulting in additional support being extended to borrowers, payment holidays being offered to eligible loan customers, credit models being significantly tightened and credit risk teams working hard to understand what medium and long-term impacts this crisis is going to have on credit performance.
At Lending Works, we faced an additional challenge. As a result of the stock market turmoil, which started to unfold on 9th March, approximately 7% of our retail investor customers requested early access to funds using our secondary market within a very short space of time. This, in turn, has created a queue of customers trying to exit their investments, which has placed a restriction on our ability to continue lending as we were before the COVID-19 crisis occurred. Furthermore, due to the current state of uncertainty, it has become extremely difficult to effectively assess customers' creditworthiness and affordability. This has clearly placed an unsustainable strain on the platform.
After working with our Board of directors, professional services advisors and the FCA, we have developed a solution to these challenges and this message is to inform you that we have now engaged this solution.
While developing this solution, our key considerations were:
- Protecting your investment
- The fairness of the solution for all of our customers as a whole
- The long-term stability of our peer-to-peer lending platform
The solution is a combination of two mechanisms, which are outlined below.
Part 1 - Normalisation Period
We are introducing a 90-day Normalisation Period, during which we will:
- Pause all new retail investor signups
- Not accept any new investments onto the platform (from new or existing customers)
- Suspend the use of the secondary market (loan sales)
- Not issue any new retail investor funded loans
If you currently have a pending loan sale request, unfortunately, you will be required to wait until the Normalisation Period has ended. However, the order of the queued requests will be maintained once the Normalisation Period ends.
During the Normalisation Period, Lending Works will receive a pro-rated servicing margin of 2.0% p.a. of the outstanding loan portfolio to cover the overheads associated with servicing the portfolio. This servicing margin is required to ensure the platform remains sustainable and can continue to service the loan portfolio without interruption. As a result of the COVID-19 crisis, the platform’s revenue has dropped from approximately £0.75m per month to near-zero. We want to highlight that we have also implemented a significant cost reduction plan in the business during this period, within which approximately one-third of our team will be placed on furlough under the government's Job Retention Scheme, while the remainder will be taking a 20% salary reduction, including the founders and directors.
The Normalisation Period will last for 90 days, however, may be extended if there is still such material uncertainty in the economy - for example if the government's social distancing restrictions continue to be in force. The Normalisation Period has been added as a new section in our new Terms and Conditions.
We want to highlight that we have not taken the decision to enter into a Normalisation Period lightly, and we have explored all other possible options to avoid it. We understand that this step might cause you concern. We want to emphasise we have done this to protect your investment. By introducing these measures we can ensure that the platform continues to function as expected during these extraordinary times and when the Normalisation Period has ended we, and the rest of the world, will have a better understanding of the long-term effects of coronavirus on the economy.
Part 2 - Lender Rate Adjustment
The Lending Works Shield will continue to operate as normal and will continue to reimburse lenders for any loan repayment that borrowers are unable to pay. Given the uncertainty, though, it is near impossible to know what impact this crisis is going to have on the economy for the long term, or indeed on borrowers' ability to repay their loans over the short or long-term. On that basis, for our April 2020 update to our Lender Rate Adjustment mechanism, we will temporarily divert all interest repayments to the Lending Works Shield for all active cohorts (i.e. 2014 to 2020). Therefore, during the second quarter of 2020, retail investors will continue to receive capital repayments on their loans but will not be receiving interest.
Please note that diverting additional interest to the Lending Works Shield during Q2 2020 is not part of the new Normalisation Period mechanism. This action has been taken under the existing provisions (19.12 - 19.14) of our Lender Platform Terms and Conditions.
We have taken this extremely difficult step as we believe it is prudent to do so. It is impossible to accurately forecast the expected loss rates of a portfolio of loans in these conditions, especially considering how quickly this virus and the economic turmoil has engulfed the globe. We believe in such times of extreme market volatility that protecting your capital has to remain the number one priority.
The full analysis pack and update to our statistics pages is due in line with the existing timetable, which is 30th April. This analysis will reflect the expected annual return received by investors over the lifetime of the loans in their portfolio accounting for the reduced returns in Q2 2020.
Looking forward
It is our intention that the Normalisation Period and the reduction of lender returns both revert back to normal at the end of the 90-day period and in the July 2020 update to the Lender Rate Adjustment mechanism. Given there is so much uncertainty in the economy currently, though, we will update you on our progress each month during this period.
Summary
There is still a great deal of uncertainty in the economy and around the long-term impacts of the coronavirus on society, and we cannot predict what the ultimate outcome will be. What we can do, though, is to make sure we are as well prepared to protect your investment as we can be, and it is for this reason we have introduced these extraordinary measures.
Yours sincerely,
Nicholas, Matthew and Simon
CEO, CFO and Chairman
