j
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Penguins are very misunderstood!
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Post by j on Jul 17, 2015 16:02:16 GMT
A new message from AH:
I wrote to you recently regarding how we currently handle loans that have had some form of credit event and to let you know that we planned to change this. I promised to update you today, and here it is.
Assetz Capital believes in Fairer. Growth. Together. and this is an ethos that affects all our stakeholders. This is why we have always taken the step of suspending loans that have had some form of credit event. The reason for this is to ensure that no-one invests into a loan when there is new information that could suggest that it may be going or has gone bad. That would be unfair to them, especially where an Investment Account is automatically buying loan units. But our lenders have spoken out and many feel that it is also disagreeable to be locked into loans during the period of a credit event and would like to be able to try to sell their holding if they so wish. We have listened to those concerns too.
We have decided to implement a new process, which seeks to address this imbalance while applying appropriate lender protections. This hasn’t been easy to do and finding the right balance is the key. What we are implementing is:
When a credit event occurs we will suspend the loan for three working days to allow lenders time to read the information and ask any questions.
AC will e-mail affected lenders telling them what the event is and what we are doing to achieve a successful outcome. The three working days described above gives lenders the chance to see the e-mail, digest the information and ask questions if they need to.
When the loan is suspended all existing manual investment targets will be removed.
Lenders then have those three working days to set new investment targets within the Manual Loan Investment Account.
After the three working days the loan will be suspended from all automatic investment mechanisms, only being tradable by the Manual Loan Investment Account.
The loan will have a marker on it saying CREDIT EVENT and the details will be held in the Activity section. The marker and the requirement to set new manual investment targets will ensure that prospective purchasers are aware of the credit event and make an informed choice to buy units, if they so wish.
Any loan where the credit event gives rise to a known or an elevated risk of a potential loss will remain completely suspended for the time being.
Once the credit event has been rectified, the marker will be lifted and the loan will be free to trade normally again (i.e.: automatic and manual investment).
In essence, lenders will have the choice to sell units where there is a credit event, and also the choice to buy units in these loans as well if they so wish, having made an informed choice to do so. Please note that it remains the case that units can be listed for sale but there has to be a buyer willing to purchase them for them to sell.
I can hear you asking, "What about selling at a discount?” and “What about discounts if there is going to be a loss?” We are considering this but it needs much deeper thought, especially where Investment Accounts are involved. For now, units can only be sold at par, which is why loans will remain suspended where the credit event gives rise to a known or potential loss. We have given careful consideration to allowing for sale at a discount, or a premium, but until we have established how the mechanics could work so that no lender is unfairly prejudiced, we will not be setting this live. I will have more details on whether we feel we can implement this in the short term by 31st July.
We have taken careful, measured steps with these changes, as we want them to be seen as fair to all lenders. As always, we welcome your feedback so please feel free to email us at feedback@assetzcapital.co.uk
Assetz Capital – Fairer. Growth. Together.
Andrew Holgate, MD
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pikestaff
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Post by pikestaff on Jul 17, 2015 16:10:31 GMT
Disappointing that sales at a discount are not yet implemented. Hopefully soon...
Also it's not clear how it will work for loans already in suspense (many of which have been there for months). Will there be a letter to lenders on all these, with 3 days from the date of the letter?
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am
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Post by am on Jul 17, 2015 16:16:34 GMT
When the loan is suspended all existing manual investment targets will be removed. Two questions come to mind. The first is "what about people who are on holiday, etc., and don't have the opportunity to respond within 3 days?" I don't think there's a problem, but was their position explicity considered? The second is "what does the quoted sentence mean?" I can see three different interpretations - setting the target to zero, setting the target to the value of the current holding, or marking the holding independently of the current target as non-tradeable. In the first case anyone on holiday has their holdings sold off after the 3 days are up; in the second they have their holdings replenished after capital repayments; in the third there holdings pay down, ideally according to the repayment schedule.
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am
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Post by am on Jul 17, 2015 16:28:50 GMT
After the three working days the loan will be suspended from all automatic investment mechanisms, only being tradable by the Manual Loan Investment Account. If I understand correctly the only current automatic investment mechanism is the GEIA. Holders of this are partially protected by the provision phund - this compensates for the inability to selectively sell out of a particular loan. I can see why AC would not want to add to the GEIA's holdings in that loan - it would make it more likely for the provision fund to fail to cover losses on the account (and reduces AC's windfall if the account is ever run down). Apart from the potential impact on liquidity and diversity (if the deal flow was too low) I don't see any cause to object to the GEIA selling it down in favour of other eligible loans, provided there are willing buyers.
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Post by mrclondon on Jul 17, 2015 17:11:56 GMT
Hmm. No discount for now. No segregation of distressed loans to another marketplace.
Net result, howls of anguish when newbies realise they have bought into loans at an unrealistically low yield.
A lot hinges on AC's definition of a loan with known or high risk of loss - which side of the boundary will Anglesey and Kent be included for example ? Or Essex which I rate as a high rate of loss IF it goes to auction under a LPA receiver.
Not convinced this is at all sensible, depsite the fact I'll no doubt benefit by reducing my exposure to most of the suspended loans.
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j
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Penguins are very misunderstood!
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Post by j on Jul 17, 2015 17:16:35 GMT
Disappointing that sales at a discount are not yet implemented. Hopefully soon... Also it's not clear how it will work for loans already in suspense (many of which have been there for months). Will there be a letter to lenders on all these, with 3 days from the date of the letter? My understanding is any already suspended laons will remain suspended regardless of this annoncement. I'll re-read to check again 
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j
Member of DD Central
Penguins are very misunderstood!
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Post by j on Jul 17, 2015 17:19:29 GMT
Not convinced this is at all sensible, depsite the fact I'll no doubt benefit by reducing my exposure to most of the suspended loans. Not too sure even that will happen as most users will have enough warnings before investing. It's only absolute newbies who jump in both feet without looking who might get caught out in all this. If a discount was allowed, it might offer a more appetisisng risk/reward ration than at par sales.
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Post by pepperpot on Jul 17, 2015 17:30:37 GMT
After the three working days the loan will be suspended from all automatic investment mechanisms, only being tradable by the Manual Loan Investment Account. If I understand correctly the only current automatic investment mechanism is the GEIA. <snip> Once a target is set, all trades are automatic. andrewholgate - other than the GEIA, there is ONLY the MLIA, which to me is an automatic investment mechanism. Currently, within an automatic environment, the only safe way to deal with 'credit events' is to suspend, but that should just be the first step (hit the big red button). Whatever then happens to an investors preset instructions (erased, paused etc.), needs to be signed off before hand by agreeing to a new T&C's, because altering someone's target in any way without authorisation could be seen as AC fiddling with an investors instructions and therefore making decisions on their behalf. Whatever the current unclear intention is, it will not suit everyone. The old site was more alined to trading impaired loans and an equivalent area (manual only, inc discounts) is the best way I can see of bolting on to the current site that which is being called for. It can be crude initially, that doesn't matter, as long as it works people will use it, and any trades will be entirely the action of the investor.
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Post by chris on Jul 17, 2015 17:34:52 GMT
Not convinced this is at all sensible, depsite the fact I'll no doubt benefit by reducing my exposure to most of the suspended loans. Not too sure even that will happen as most users will have enough warnings before investing. It's only absolute newbies who jump in both feet without looking who might get caught out in all this. If a discount was allowed, it might offer a more appetisisng risk/reward ration than at par sales. Discounts are being very seriously considered but there are a lot of potential issues we need to work through let there be unintended consequences. We've been through several iterations of spec and there's always a complication or issue that we need to resolve, hence no promises on its implementation just yet.
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Post by chris on Jul 17, 2015 17:43:50 GMT
If I understand correctly the only current automatic investment mechanism is the GEIA. <snip> Once a target is set, all trades are automatic. andrewholgate - other than the GEIA, there is ONLY the MLIA, which to me is an automatic investment mechanism. Currently, within an automatic environment, the only safe way to deal with 'credit events' is to suspend, but that should just be the first step (hit the big red button). Whatever then happens to an investors preset instructions (erased, paused etc.), needs to be signed off before hand by agreeing to a new T&C's, because altering someone's target in any way without authorisation could be seen as AC fiddling with an investors instructions and therefore making decisions on their behalf. Whatever the current unclear intention is, it will not suit everyone. The old site was more alined to trading impaired loans and an equivalent area (manual only, inc discounts) is the best way I can see of bolting on to the current site that which is being called for. It can be crude initially, that doesn't matter, as long as it works people will use it, and any trades will be entirely the action of the investor. Whilst you are right that the MLIA is automatic in how it lends, the decision to lend and the amount to lend are manually set so we consider it a manual mechanism when it comes to risk assessment. GEIA and any future accounts we launch remove that manual choice on a per loan basis hence considered fully automatic. When it comes to risk and the decision to lend or not I personally don't think it matters if you are choosing which loan units to buy from whom or if a system is doing that for you. I'll leave the legals to someone else to handle but we won't be making any adjustments to targets, e.g. setting them to current holdings, we will be removing any instruction from the system making it simply hold the current loan units and not buy or sell. This is, again in my opinion, the same as freezing your instructions and asking you to confirm that you really do want them carried out after whatever the credit event is. The old site was simpler when it came to trading impaired loans but had its own issues around fair distribution of sales on oversubscribed loans, being able to sell arbitrary amounts instead of whole loan units, support for automatic investment accounts, being able to sell your holdings as a small investor, etc. To make discounts work we'll need to change the way the MLIA works which should address many of the complaints and concerns. I don't have a timeframe on that though as we're still agreeing the precise specification. I'm not particularly keen on bolting on a separate market that only activates when a loan is impaired if it can be avoided.
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ilmoro
Member of DD Central
'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
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Post by ilmoro on Jul 17, 2015 17:44:20 GMT
When the loan is suspended all existing manual investment targets will be removed. Two questions come to mind. The first is "what about people who are on holiday, etc., and don't have the opportunity to respond within 3 days?" I don't think there's a problem, but was their position explicity considered? The second is "what does the quoted sentence mean?" I can see three different interpretations - setting the target to zero, setting the target to the value of the current holding, or marking the holding independently of the current target as non-tradeable. In the first case anyone on holiday has their holdings sold off after the 3 days are up; in the second they have their holdings replenished after capital repayments; in the third there holdings pay down, ideally according to the repayment schedule. Simple answer to both is for AC to just change the invest button to disable on suspended loans. Then its up to the lender to re-enable following any revisions to their targets
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Post by chris on Jul 17, 2015 17:47:21 GMT
After the three working days the loan will be suspended from all automatic investment mechanisms, only being tradable by the Manual Loan Investment Account. If I understand correctly the only current automatic investment mechanism is the GEIA. Holders of this are partially protected by the provision phund - this compensates for the inability to selectively sell out of a particular loan. I can see why AC would not want to add to the GEIA's holdings in that loan - it would make it more likely for the provision fund to fail to cover losses on the account (and reduces AC's windfall if the account is ever run down). Apart from the potential impact on liquidity and diversity (if the deal flow was too low) I don't see any cause to object to the GEIA selling it down in favour of other eligible loans, provided there are willing buyers. I'm minded to change it so the GEIA can sell out if a lender puts a withdraw request in but it won't try and sell from a credit event flagged loan otherwise. GEIA will continue to be barred from increasing investment in a credit event loan though.
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Post by mrclondon on Jul 17, 2015 17:47:22 GMT
Following on from pepperpot's excellent post regarding the automated nature of the MLIA once targets are set, I think it needs to be recognised that once a credit event has been triggered the news flow both from AC and from lender due dilligence can alter the risk perception very quickly. So we have the situation that once the initial credit event has been digested over 3 days lenders re-establish targets and trading resumes. The consensus view on a particular loan is that it's a flash in the pan, and minimal trading volume occurs, with many buy targets remaining unfulfilled. Two days later a major negative piece of info comes to light, and alert lenders key in sell targets off-loading to those who haven't been able to cancel their targets in time. The more I think about it, the more convinced I am that trade in distressed loans should be an entirely manual process. |
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Post by chris on Jul 17, 2015 17:48:43 GMT
Two questions come to mind. The first is "what about people who are on holiday, etc., and don't have the opportunity to respond within 3 days?" I don't think there's a problem, but was their position explicity considered? The second is "what does the quoted sentence mean?" I can see three different interpretations - setting the target to zero, setting the target to the value of the current holding, or marking the holding independently of the current target as non-tradeable. In the first case anyone on holiday has their holdings sold off after the 3 days are up; in the second they have their holdings replenished after capital repayments; in the third there holdings pay down, ideally according to the repayment schedule. Simple answer to both is for AC to just change the invest button to disable on suspended loans. Then its up to the lender to re-enable following any revisions to their targets That's what we'll do - either remove the target completely or pause investments so the lender has to unpause it. Currently debating which is preferable.
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ilmoro
Member of DD Central
'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
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Post by ilmoro on Jul 17, 2015 17:50:29 GMT
Aftereligibi the three working days the loan will be suspended from all automatic investment mechanisms, only being tradable by the Manual Loan Investment Account. If I understand correctly the only current automatic investment mechanism is the GEIA. Holders of this are partially protected by the provision phund - this compensates for the inability to selectively sell out of a particular loan. I can see why AC would not want to add to the GEIA's holdings in that loan - it would make it more likely for the provision fund to fail to cover losses on the account (and reduces AC's windfall if the account is ever run down). Apart from the potential impact on liquidity and diversity (if the deal flow was too low) I don't see any cause to object to the GEIA selling it down in favour of other eligible loans, provided there are willing buyers. My understanding is that distressed loans are automatically removed from GEIA eligibility eg CWT
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