AC loan monitoring -concerns

IIRC loan monitoring (or a lack of it) has been mentioned before but cannot lay my hands on the post assuming it has been raised before and isn't a figment of my imagination. The problem with #96 is that interest was retained at drawdown so unless the illness of the borrower was reported to AC then on paper everything was fine. What does seem to be apparent is that when a problem does surface it seems to take everyone by surprise whereas of course often there is a build up of events over a period of time which, if spotted could have avoided the final problem. Often this leads to default and whilst default interest is always a nice 'bonus' it is still only on paper and has to be collected. Any default interest I'm due I've mentally written off.

So there is more and more of an incentive for lenders to dispose of their holdings before the end of term which is not a satisfactory situation IMO. In a few instances, possibly a different approach could have been taken before the loan defaulted. A new loan perhaps, an extension at standard rate. Problem is once the loan is allowed to move into the distressed column then any leeway seems to go with it.

But that's how AC operate so I guess we either accept it or move on.

Thank you all for the comments about the monitoring.  I have noted all of them and have comments to make below.

Before that, I want to make a few comments about what we have been doing in recent weeks to improve our systems and processes.  The credit team has been increased and we have more people to follow.  We now have more people in place whose sole responsibility it is to chase for management information and ensure covenants are monitored.  As of this morning there were only 3 businesses in which MI was overdue, and in one of those cases the borrower has recently lost their son.  Under treating customers fairly, we are obviously ensuring that we give the borrower some time and space at a very difficult time.  The other two are being chased.

We have also looked at the way we report information to lenders.  We are, and remain, one of the most transparent platforms in the industry.  This opens us up to your scrutiny more than any other platform out there.  We give you more information on the loan than any other platform and are also actively encouraging your participation.  In some cases this has led to snipes and nasty comments on the Q&A, but in general your questions have been good.  Where we can do better is in the timely nature of updates and in the tone of how we respond.  That will change in the coming weeks.

In terms of T&Cs in the loan documents, yes there are various conditions in there that must be met and we do not have a single loan in breach of the covenants.

On the specific loans mentioned:

- 26 - The payments are up to date.  Whilst they have been late, they have always been made good before a formal default can be declared and it seems to be due to not matching the repayment date to the business cash flows.  Until the customer misses the formal deadline for failure to make a repayment under the Terms and Conditions, we cannot enforce a default.  A meeting (or failure to meet) is not a condition of the loan.  We could try material adverse change clause, but I'm not sure a Court would uphold that as a claim just on the basis they won't meet.  While payments are made within the allotted time frame, we cannot default the loan.

- 96 - The news of the illness is recent to us and was not evident on site visit.  If the customer didn't tell us and it wasn't apparent then unfortunately there is nothing we can do.  As the interest was retained on drawdown, payments are up to date.  There is no default clause for illness unless you want us to try on material adverse change, but again I doubt a Court would uphold that one.  If lenders don't want to renew the loan, then we will get a default.  Ball will be in your court on that one.

- 10 loans without updates.  I will get those actioned, but may take me 7-10 days to get all of them done.

I refute the statement that we are lax in our monitoring or that we are failing to do that job adequately.  In fact, adequately suggests a lax approach and we are doing a more than adequate job.  I am satisfied on all cases they we have taken every step necessary to keep loans under review, and I even undertook an extensive review on the South Coast loan.  In that case, external trading events took place after the MI we had and only became apparent when the next batch was due.  Unless we train the team in ESP or we sit in each business, some events will come as a surprise.

I'm not going to make further comments on this.  Part of the reason I have been quite on the forum is I have been concentrating heavily on improving the business.  I, personally, am well aware of our lenders focusing on protecting their investment.  I know we have to communicate with you better, but please be assured we are on top of this but expect improvements to come in the coming weeks.  I will add to that, this won't be a miraculous overnight improvement, so don't go expecting nirvana just yet.

All noted and I am working hard to get these sorted (hence still working some 18 hours after I started!)

I am pleased to see AC are now getting more involved and seem to see the importance of Monitoring and updating loans more closely. Reading q&a on the various loans on the AC website, keeping lenders updated seems to be one of the main issues the lenders have.
I look forward to reading more frequent updates on the website!

Good response from AC, for me the critical issue remains that you are hitting the wall of trying to grow the business and develop multiple income streams at the same time as keeping in touch with us and as a result are being stretched too thin.  Glad to see you have brought in more hires. I've always felt that great businesses need to push the boundaries a bit.

It is fair to say that
1) your software does not give me any nasty shocks
2) your failed loans tended to have something "a bit odd" from the start and careful selection is required on your portfolio
3) sometimes things are not managed well, the re-finance of the care home in Lancashire jumps to mind, just because I think the deal was clear
4) timings are always too optimistic

Keep up the good work.

A little worried that another interest buffer loan 'n**** l***** cp' has just been flagged as in default with three missed payments. The worry of how many more of these exist in this 'buffered' state will be upsetting my sleep pattern for a while.