blender
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Post by blender on Oct 12, 2015 16:16:28 GMT
All listed loans rank Pari Passu. Firstly this is imprecise language for an important legal point. Secondly this is clearly aimed chiefly at initial subscribers, and the reply from FC shows that there is a circumstance when it is not true. Either FC should amend their wording, or, when the borrower makes a part-repayment, it should be divided in proportion between the tranches. I think the pari passu relates only to the security in the event of a default - just as it has for multiple loan SME borrowers for some years. Should be clear in the T&Cs.
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Post by chevrons on Oct 12, 2015 17:24:59 GMT
Yes, a default is when this clause becomes operative. But in order to achieve being Pari Passu under all circumstances, which is what the clause is communicating to lenders, part-repayments have to be apportioned between all tranches.
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blender
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Post by blender on Oct 12, 2015 18:50:31 GMT
Part repayment is not quite right because these are structured as separate loans (not tranches of one loan) and they become connected only when there is a default, and repayments become recoveries. Payment of a tranche is full repayment of a loan, not part repayment of anything. Agreed they do not need to say pari passu, on an equal footing in event of a default would do, and they could explain the process better.
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Post by aloanatlast on Nov 23, 2015 5:33:49 GMT
Tranches are connected as soon as money comes in, because FC gets to decide how to allocate it. Each loan part is a separate contract with the borrower, but moderated by mutual agreements between the lenders by which they give up individual rights in favour of collective arrangements.
In fact tranches are connected slightly earlier, because the conveyance of a property to a buyer will involve FC giving up its charge. So does FC then take the full net purchase price and allocate it immediately to lenders in some fashion? Anything else is potentially compromising the security.
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Post by aloanatlast on Nov 23, 2015 7:23:39 GMT
But remember that any loan can be repaid early by the borrower. If I was a developer, then as soon as I had sufficient funds from the sale of one or two units, I would start repaying tranches in order to save interest. I don't think they save any interest. It's withheld at drawdown, ie rolled into the principal, which is payable in full whether it's early or not. Looking at it another way, FC has raised from the lenders more than the borrower wanted, in order to stash the rest under the ping-pong table and dribble it back to the same lenders disguised as taxable interest. And the borrower isn't going to get any of it, because the lenders want it all back. (Quite apart from the deep philosophical Why questions here, there's the interesting matter of exactly whose ping-pong table the money is stashed under. Is it in a client account? Is it covered by FSCS? If so, who gets the compensation, the borrowers or the lenders? If the borrower goes bust, with other creditors, does the Receiver have a claim?)
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Post by GSV3MIaC on Nov 23, 2015 8:38:31 GMT
If repaid early, I am fairly sure anything still under the ping-pong table comes off the capital repayment, so the developers DO save interest.
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Post by aloanatlast on Nov 23, 2015 8:40:56 GMT
I was looking at Challock. 2-phase development.
Phase 1, started May, 18 months. Tranche 1, May, 18 mo, end Nov 2016 Tranche 2, June, 17 mo, end Nov 2016 Tranche 3, Aug, 16 mo, end Dec 2016 Tranche 4, Oct, 16 mo, end Feb 2017
Phase 2, starting Nov, 18 months Tranche 1, Nov, 18 mo, end May 2017
So the end dates on Phase 1 have rolled forward. Not co-terminal even within a month. Nothing said about any delays or any need to extend the earlier tranches, they're still expected to be repaid on time as far as we know.
And what exactly is the significance of the new one being Phase 2 Tranche 1 instead of Tranche 5?
What happens if the Phase 2 properties sell first?
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blender
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Post by blender on Nov 23, 2015 8:59:16 GMT
Very interesting, thanks. They seem to be treating phase 1 and phase 2 as different projects by the same borrower, with different completion dates. The only linkage between the two phases will be in security and the fact that it is all one borrower for diversity purposes - Autobidders will not be in both. There seems to be slippage on phase 1, but presumably within the allowable timescales. Phase 2 is not for flipping.
If phase 2 is sold first (or at any time) then phase 2 loans will be repaid unless there is a default on phase 1. FC will be rather reluctant to call a default on a property loan.
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Post by aloanatlast on Nov 23, 2015 9:31:23 GMT
Very interesting, thanks. They seem to be treating phase 1 and phase 2 as different projects by the same borrower, with different completion dates. The only linkage between the two phases will be in security and the fact that it is all one borrower for diversity purposes - Autobidders will not be in both. There seems to be slippage on phase 1, but presumably within the allowable timescales. Phase 2 is not for flipping. So, in principle, if Tranches 1-4 were to be paid off while FC still had a charge over unsold assets in Phase 1, does FC give up that charge, or hold it until Phase 2 is paid off?
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blender
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Post by blender on Nov 23, 2015 9:59:30 GMT
This is the case where sufficient of phase 1 property has been sold to pay off the loan, but there is other incomplete or unsold phase 1 property covered by FC's charge? And at the same time all or part of phase 2 is not yet repaid? I believe that FC has arrangements whereby the excess security on one project can be used to support another linked project, and so I believe that the charge would be retained on the unsold phase 1 assets until such time as phase 2 is repaid. That does not stop phase 1 being sold of course.
But I am getting out of my depth here - only a poor chameleon you know - and others will have better knowledge, please.
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Post by devonlad on Nov 23, 2015 10:14:10 GMT
Re Challock development.
FC state that security for phase 1 is entirely separate from the security for phase 2. See my question/answer against the relevant loan.
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blender
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Post by blender on Nov 23, 2015 10:26:01 GMT
Thank you for that correction. I should have read their reply this morning. Surprising that they are not using any excess security on phase 1 to secure phase 2.
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Post by aloanatlast on Nov 23, 2015 11:15:50 GMT
Seems different from the policy with SME loans, where as I understand it any security taken on the 1st loan will then cover the 2nd as well (somewhat to the detriment of people who lent against it).
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