Secondary Market guide (ABL)

GSV is absolutely right, but there are a few more things.

Be careful about paying a premium, because loans can be repaid early, in which case the AER you see may not be what you get. The overall interest rates are high here and it is quite common for a successful borrower to wish to refinance asap. Check the minimum guaranteed interest period as well as the term.

Also it is best to buy just after the repayment has been made, so that you do not have to buy too much accrued interest. By some quirk this is not subtracted from the interest earned figure, and the tax report.

Aug 5, 2018 12:10:12 GMT elliotn said:

Re defaults, was there a plane that was grounded (which redeemed) and a company has just been taken off abl’s books for administration (although it had a 5M interco bal with a company that continues to provide guarantees to a few loans on abl - sold for a pound). That gives a flavour of the potential risk despite the talk on here about a competence/standards’ differential.

Make sure you check the security has been registered, there’s a history of a few being ‘missed’ and, I believe, there is still at least one more without it (you’d be surprised how hard it is to get an answer).

When you look at diversity of asset, make sure you’re comfortable with the recovery valuation of, say, a bespoke flat-pack building, in situ plant or gas generators that at 1% cost of capital difference would double your LTV from the sales brochure (and that coc would still be far below what abl are charging).

When you consider diversification of borrowers, you need to look at directors as well as the different companies (and even their accountants); the gene pool - and the concomitant risk of contagion - is quite incestuous.

These are very good points. There are some posts on DD central which are worth reading on the interconnectedness of companies and directors. A number of the loans are to intermediaries, or groups of connected intermediaries, secured against assets belonging to other companies which have a separate borrowing relationship with the intermediaries, often with common directors/shareholders. The co in administration was not an Ablrate borrower, but held assets securing a loan to an intermediary, which loan was repaid early, before the administration. The co in administration is also a wholly owned subsidiary of another co which received other Ablrate loans, as well as having larger crowdfunding loans.

It seems to me that the Ablrate loans are structured  to tap into the strength of these interconnected companies and individuals, and lenders have been shielded from bad news. However, if that strength becomes an over-geared weakness, it will be very messy. I prefer to go for the loans which are secured on physical assets which have current value, and where Ablrate Assets has a direct charge.

Only three loans have defaulted, so far, but we are only up to loan 110.