Repeat 'E' borrowers- dump ye earlier tranches while ye may?
Nov 20, 2015 16:04:40 GMT
blender and betterthanworking like this
Post by wysiati on Nov 20, 2015 16:04:40 GMT
Another repeat ‘E’ risk band borrower today (17535) highlights some of the issues for lenders to earlier loans with the same borrowers at different risk bands [Edit: removed by author as inaccurate].
The initial loan (12363) was rated 'C' and [Edit: had a whole loan rate of...] 10.9%, or 1% below the new fixed rate standard of 11.9% for 48 month C loan.
The new ‘E’ loan effectively trebles [Edit: that borrower's] debt outstanding on the FC platform. The borrower's financial strength profile includes a latest stated negative net worth of -£292k, cumulative P&L losses at almost the same level, acid test ratio <0.3 etc, etc.
The FC policy is, AIUI, for multiple loans to the same borrower to rank pari passu in the event of any default and, [Edit: removed by author as inaccurate], the poor sods in the C loan would be left (often unawares) with a below market rate for the old loan risk band when the borrower has been re-assessed to have a much higher risk profile than at the time of the initial loan (2 notch jump in risk band),; meanwhile those taking on those ‘E’ band risks with fuller disclosure were offered an auction fixed rate of 18.1%. One could argue that the ‘C’ risk band assessment would be rendered invalid; apply the annualised expected loss rate for the ‘E’ band from the ‘C’ loan rate and you are looking at a pretty s****y expected buyer rate for the ‘C’ loan lenders. [Edit: As the earlier loan in this example is a whole loan it remains to be seen how 12363 is treated and reflected in the loan book]
[Edit: deleted as no longer relevant]
Disclosure: no exposure to either the existing or the prospective loan.
The initial loan (12363) was rated 'C' and [Edit: had a whole loan rate of...] 10.9%, or 1% below the new fixed rate standard of 11.9% for 48 month C loan.
The new ‘E’ loan effectively trebles [Edit: that borrower's] debt outstanding on the FC platform. The borrower's financial strength profile includes a latest stated negative net worth of -£292k, cumulative P&L losses at almost the same level, acid test ratio <0.3 etc, etc.
The FC policy is, AIUI, for multiple loans to the same borrower to rank pari passu in the event of any default and, [Edit: removed by author as inaccurate], the poor sods in the C loan would be left (often unawares) with a below market rate for the old loan risk band when the borrower has been re-assessed to have a much higher risk profile than at the time of the initial loan (2 notch jump in risk band),; meanwhile those taking on those ‘E’ band risks with fuller disclosure were offered an auction fixed rate of 18.1%. One could argue that the ‘C’ risk band assessment would be rendered invalid; apply the annualised expected loss rate for the ‘E’ band from the ‘C’ loan rate and you are looking at a pretty s****y expected buyer rate for the ‘C’ loan lenders. [Edit: As the earlier loan in this example is a whole loan it remains to be seen how 12363 is treated and reflected in the loan book]
[Edit: deleted as no longer relevant]
Disclosure: no exposure to either the existing or the prospective loan.
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