Post by shimself on Sept 9, 2015 12:42:09 GMT
see www.telegraph.co.uk/finance/personalfinance/investing/11850874/Safer-than-peer-to-peer-and-steadier-than-bonds-Should-you-invest-in-corporate-loans-for-a-5pc-return.html?
Not such a bad idea?
edited version of telegraph article
WiseAlpha is a platform that gives ordinary investors, with as little as £100 to lay down, the ability to back loans made to large corporate borrowers.
It has characteristics in common with peer-to-peer lending and corporate bonds but, its designers say, is crucially different from both.
Investors place money on the platform and this is used to purchase "notes" that represent “senior secured” loans made to large, corporate borrowers.
Once you have decided the loans you want to invest in, WiseAlpha will show you the return you can expect at current prices.
The company said yields are expected to be between 4pc to 6pc, with the current average 5.1pc.
The rate you get can change. That’s because the loans are prices at Libor plus a percentage rate. For example, a loan on WiseAlpha may have a rate of Libor plus 4.5pc, meaning the rate will rise if the Bank of England rate, which is closely aligned to Libor, rises.
This is a crucial difference from traditional bonds, which have fixed coupon that will become less attractive if Bank Rate rises, depressing the price of the bond. In this way, bond prices have become more voilatile as the environment for interest rates slowly turns.
How safe is it?
The loans are “senior secured” which means, in the case of default by the borrowing company, they share they same status as the most secure bonds. In many cases, senior secured loan creditors are ahead of bondholders in the queue.
The loans are made to large established companies. Right now, as WiseAlpha launches, investors can grab a piece of loans made to United Biscuits, Eddie Stobart, WorldPay, Virgin Media and the RAC. More borrower names will be added, WiseAlpha has said.
“In terms of risk, senior secured loans sit somewhere between investment grade bonds and high-yield”, said Rezaah Ahmad, chief executive of WiseAlpha.
“They are safer than high-yield because they are repaid before those bonds and we will only list loans to large companies, which are less likely to fail and have more at stake if they default.”
Why not peer-to-peer?
In one sense, WiseAlpha feels like a peer-to-peer platform. The difference comes in the size and number of loans investors are getting exposure to, and the size of the companies taking those loans.
The WiseAlpha loans are much larger (than most p2b) and investors on it have exposure to only a handful of companies.
Peer-to-peer lending decisions are made by the platform, using some traditional criteria alongside its own banks of data. The WiseAlpha loans have already been agreed between the borrowing companies and their banks, with all the traditional checks.
Other catches?
WiseAlpha investments have to be held for five years.
There is the possibility of getting at some or all of your money before that but it depends on the establishing of a “secondary market” for WiseAlpha notes, where those selling loans and those buying are matched up.
There is a 0.25pc charge for selling assets in this way.
The overall fee to use WiseAlpha is 1pc. This, however, is discounted to zero for those signing up before 30 September.
WiseAlpha investments cannot be held within Isas (unlike traded retail bonds, which can be held inside an Isa just like shares).
Not such a bad idea?
edited version of telegraph article
WiseAlpha is a platform that gives ordinary investors, with as little as £100 to lay down, the ability to back loans made to large corporate borrowers.
It has characteristics in common with peer-to-peer lending and corporate bonds but, its designers say, is crucially different from both.
Investors place money on the platform and this is used to purchase "notes" that represent “senior secured” loans made to large, corporate borrowers.
Once you have decided the loans you want to invest in, WiseAlpha will show you the return you can expect at current prices.
The company said yields are expected to be between 4pc to 6pc, with the current average 5.1pc.
The rate you get can change. That’s because the loans are prices at Libor plus a percentage rate. For example, a loan on WiseAlpha may have a rate of Libor plus 4.5pc, meaning the rate will rise if the Bank of England rate, which is closely aligned to Libor, rises.
This is a crucial difference from traditional bonds, which have fixed coupon that will become less attractive if Bank Rate rises, depressing the price of the bond. In this way, bond prices have become more voilatile as the environment for interest rates slowly turns.
How safe is it?
The loans are “senior secured” which means, in the case of default by the borrowing company, they share they same status as the most secure bonds. In many cases, senior secured loan creditors are ahead of bondholders in the queue.
The loans are made to large established companies. Right now, as WiseAlpha launches, investors can grab a piece of loans made to United Biscuits, Eddie Stobart, WorldPay, Virgin Media and the RAC. More borrower names will be added, WiseAlpha has said.
“In terms of risk, senior secured loans sit somewhere between investment grade bonds and high-yield”, said Rezaah Ahmad, chief executive of WiseAlpha.
“They are safer than high-yield because they are repaid before those bonds and we will only list loans to large companies, which are less likely to fail and have more at stake if they default.”
Why not peer-to-peer?
In one sense, WiseAlpha feels like a peer-to-peer platform. The difference comes in the size and number of loans investors are getting exposure to, and the size of the companies taking those loans.
The WiseAlpha loans are much larger (than most p2b) and investors on it have exposure to only a handful of companies.
Peer-to-peer lending decisions are made by the platform, using some traditional criteria alongside its own banks of data. The WiseAlpha loans have already been agreed between the borrowing companies and their banks, with all the traditional checks.
Other catches?
WiseAlpha investments have to be held for five years.
There is the possibility of getting at some or all of your money before that but it depends on the establishing of a “secondary market” for WiseAlpha notes, where those selling loans and those buying are matched up.
There is a 0.25pc charge for selling assets in this way.
The overall fee to use WiseAlpha is 1pc. This, however, is discounted to zero for those signing up before 30 September.
WiseAlpha investments cannot be held within Isas (unlike traded retail bonds, which can be held inside an Isa just like shares).