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Post by ablrateandy on Feb 19, 2016 14:32:21 GMT
Yes thanks unmadem (and blender for asking the pertinent). I got a bit tied up in the business side and should have addressed the points better and will refine over the weekend to make things clearer in the final document.
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Post by ablrateandy on Feb 19, 2016 14:38:51 GMT
Also, re stevio 's point on an additional 3.4pc vs some of our rivals. You should also appraise the likelihood of platforms with rampant demand at 12pc maintaining that or whether they will cut rates to increase origination. On the flip side, if p2b falls out of favour rates might rise. This locks in your return (if we don't mess up )
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unmadem
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Post by unmadem on Feb 19, 2016 14:56:30 GMT
Yes thanks unmadem (and blender for asking the pertinent). I got a bit tied up in the business side and should have addressed the points better and will refine over the weekend to make things clearer in the final document. No problem, running things through this forum is a great way to get a good final quality assurance check.
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Post by ablrateandy on Feb 19, 2016 15:16:39 GMT
Yes and sorry I actually inadvertently told a half-truth earlier. Relevant to stevio 's question and I should disclose. It is then up to anyone else to respond if they choose. When we first floated this loan we were approached by a few lenders who were interested in investing a cornerstone amount (I think in October). At that point, I told the four of them that I would, where possible, increase the payout beyond 205 for some of the initial expressions of interest if the SPV massively out-performed our expectations because those cornerstone interests would make this deal viable. There has been no discussions of exact amounts, there is no equity being passed over, merely the word of the directors that we see 205 as being a minimum target and if we could increase that we will. This remains the position, so that whilst all loan parts are pari passu and paid out at 205 first in line before anything else, there is the possibility that some of any profit on top of that may be returned to some but not necessarily all of the lenders in return for their early participation. I apologise - it was flagged to me as an error on my part and on the final proposal document I will make that clear.
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duck
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Post by duck on Feb 19, 2016 15:20:59 GMT
huxs .... duck - sorry I wasn't accusing you of malfeasance . If a secondary market transfer was not possible then we would be able to manually move it over at a fair value price. Brilliant, thanks!
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james
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Post by james on Feb 19, 2016 15:46:58 GMT
A bit more background on this one. Mid last year I opined to Andy that the container borrower didn't really need a series of loans but really needed an ongoing working capital facility. I was certainly not the only one who thought that and this is the result. When we first floated this loan we were approached by a few lenders who were interested in investing a cornerstone amount (I think in October). At that point, I told the four of them that I would, where possible, increase the payout beyond 205 for some of the initial expressions of interest if the SPV massively out-performed our expectations because those cornerstone interests would make this deal viable. There has been no discussions of exact amounts, there is no equity being passed over, merely the word of the directors that we see 205 as being a minimum target and if we could increase that we will. This remains the position, so that whilst all loan parts are pari passu and paid out at 205 first in line before anything else, there is the possibility that some of any profit on top of that may be returned to some but not necessarily all of the lenders in return for their early participation. do you have any financial interest in this other than as a lender in the normal way through Ablrate? As you can see from my earlier post, I'm one of the four that ablrateandy mentioned, so if it does go very well after five years I might make more from being in that group. Given that the level of interest I doubt my posts here can make any difference to what I might make, because there's no realistic chance that it'll fail to be fully subscribed regardless. Still, I told ablrateandy that he should mention this class so I could mention it as a reply to you. I'm in a group who made an early commitment to lend on this deal so if the business does well and those lenders get paid a bit more, I might get that. See ablrateandy's post for more.
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alanp
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Post by alanp on Feb 19, 2016 16:20:02 GMT
HI ablrateandy, I can't access the documents for some reason from either your email or the link in this thread. Is there a problem or is it an issue at my end? Thanks
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Post by ablrateandy on Feb 19, 2016 16:21:09 GMT
From the response I think it is ok Shall I email it to you?
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alanp
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Post by alanp on Feb 19, 2016 16:29:16 GMT
Yes please. I'll pm you my email address.
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SteveT
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Post by SteveT on Feb 19, 2016 16:34:52 GMT
One thing that worries me about this loan structure (and not just because james is such a fan! ) is the potential for unwary lenders to be taken advantage of via the SM. The combination of the very high interest accrual rate, the very long term, the facility to set premiums / discounts on the Ablrate SM and the fact that a SM buyer will assume future tax liability for "accrued interest purchased" all conspire to make a potential trap for the incautious and to risk Ablrate's reputation. For example, a future novice SM buyer seeing an offered AER of 12% in 3 years time might think it looks pretty attractive. In reality the seller will be walking away with a much inflated IRR and passing income tax liability for 3 years of accrued interest sold to the buyer. If the buyer is a higher rate taxpayer then they'll almost certainly lose money on their purchase. Might I suggest that a pre-purchase warning / confirmation be added to the SM for this loan that says something like "WARNING: This loan only pays out interest at the end of 5 years but accrues interest over its term at an AER of 15.4%. If you buy into this loan during the term at an indicated AER of LESS than 15.4% then you are paying a premium to the seller for the interest accrued to date. If you buy, you will assume income tax liability not only for interest accrued AFTER your purchase but also for all interest ALREADY accrued to date. Please tick the box below to confirm your awareness and acceptance of this."
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Post by ablrateandy on Feb 19, 2016 16:45:43 GMT
Yes indeed stevio . The first line of the description (or more likely the title) will highlight this. I will also be checking this thoroughly so it will be paused for the first week or so until I check it is behaving correctly. SteveT
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james
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Post by james on Feb 19, 2016 17:15:39 GMT
The combination of the very high interest accrual rate, the very long term, the facility to set premiums / discounts on the Ablrate SM and the fact that a SM buyer will assume future tax liability for "accrued interest purchased" That does not seem consistent with how MHRC describes tax for a loan of this sort. There is a notable difference between how Funding Secure and Ablrate handle sales of loans with accrued interest. Funding Secure says: " Seller The funds received by the seller of a loan part on the secondary market are considered a capital transfer, plus a premium paid as an incentive, in payment for the original capital lent. They are therefore not reported to HMRC and are not liable for income tax. Buyer The buyer pays for the capital of the loan part, together with any premium. When the loan completes the buyer will be responsible for all income tax liability on the full interest earned. FundingSecure are required by HMRC to report this interest paid to UK individuals at the end of each tax year." This is not how Ablrate does things. At Ablrate the buyer is charged and pays pays the seller the accrued interest and Ablrate accounts report both as interest transactions. Not an incentive premium like FS, but interest. As HMRC's SAIM2450 says: " Transfers of securities or deposits Where a person sells interest-bearing securities ‘cum dividend’, in other words he or she does not receive the next interest payment due on the securities, he or she cannot be taxed under general principles on the element of the sale price that relates to accrued interest (Wigmore v Thomas Summerson and Sons Ltd, 9TC577). However, the Accrued Income Scheme (SAIM4000 onwards) allows the transferor to be taxed on the accrued interest, with corresponding relief for the transferee. Interest on securities taxable under the Accrued Income Scheme (AIS) is exempt where the interest is covered by accrued income losses.
Similarly, if the ownership of a bank account or other interest-bearing investment changes, the new owner will be taxable on the whole of the next interest payment that is credited or paid." As HMRC explains under the Accrued Interest Scheme in SAIM4020: " Sales with accrued interest (‘cum div') Most sales of marketable securities are ‘cum div’. That is, the buyer is entitled to the next interest due. As an interest payment date on a security approaches, its market price increases to reflect the increase in value of the buyer's right to the interest. In other words, the price reflects accrued interest.
For example, £100,000 8% Treasury Stock 2002-06 is transferred cum div on 19 April. 14 days’ interest has accrued since interest was last paid on 6 April. Accrued interest is £307 (14/365 x 8% x 100,000).
Under the AIS, the interest which has accrued up to the date of sale is assessed to income tax on the vendor (whose sale price will have been increased to take account of it), and the purchaser is given relief for the same amount normally against the next payment of interest." This seems to work essentially as I described earlier: the seller is taxed on the accrued interest at the time of sale and the buyer is taxed on the subsequent accrual.
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blender
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Post by blender on Feb 19, 2016 17:23:38 GMT
One thing that worries me about this loan structure (and not just because james is such a fan! ) is the potential for unwary lenders to be taken advantage of via the SM. The combination of the very high interest accrual rate, the very long term, the facility to set premiums / discounts on the Ablrate SM and the fact that a SM buyer will assume future tax liability for "accrued interest purchased" all conspire to make a potential trap for the incautious and to risk Ablrate's reputation. For example, a future novice SM buyer seeing an offered AER of 12% in 3 years time might think it looks pretty attractive. In reality the seller will be walking away with a much inflated IRR and passing income tax liability for 3 years of accrued interest sold to the buyer. If the buyer is a higher rate taxpayer then they'll almost certainly lose money on their purchase. Might I suggest that a pre-purchase warning / confirmation be added to the SM for this loan that says something like "WARNING: This loan only pays out interest at the end of 5 years but accrues interest over its term at an AER of 15.4%. If you buy into this loan during the term at an indicated AER of LESS than 15.4% then you are paying a premium to the seller for the interest accrued to date. If you buy, you will assume income tax liability not only for interest accrued AFTER your purchase but also for all interest ALREADY accrued to date. Please tick the box below to confirm your awareness and acceptance of this." This is really important SteveT. There is no test of financial knowledge when signing up to Ablrate and you have to assume that buyers are not sophisticated investors. I put my £410 of containers for sale at 103% with 8% AER and did not really expect it to go. Gone in two days. You do wonder why someone wants it at 8% for 7 months - and then someone with a conscience would hope the buyer does not have to pay income tax, because I am scared to calculate the AER after 20% of interest at 13% is gobbled up. At least I know it cannot be repaid early. The proceeds go straight into the ATR at 13%, which you would think a better choice for the purchaser. p.s. offers are now at 105% and 4% AER but surely no-one will buy that?
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gt94sss2
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Post by gt94sss2 on Feb 19, 2016 21:04:13 GMT
Might I suggest that a pre-purchase warning / confirmation be added to the SM for this loan that says something like "WARNING: This loan only pays out interest at the end of 5 years but accrues interest over its term at an AER of 15.4%. If you buy into this loan during the term at an indicated AER of LESS than 15.4% then you are paying a premium to the seller for the interest accrued to date. If you buy, you will assume income tax liability not only for interest accrued AFTER your purchase but also for all interest ALREADY accrued to date. Please tick the box below to confirm your awareness and acceptance of this." This is really important SteveT. There is no test of financial knowledge when signing up to Ablrate and you have to assume that buyers are not sophisticated investors. I haven't got my head around the SM implications yet but the lack of a sophisticated investor test does worry me, as well as lack of clarity over the taxation arrangements - and if I was ablrate I would be concerned as well especially given they don't yet have their full FCA authorisation. I don't think a disclaimer/warning on the SM loan page is sufficient. Personally, I don't like the thought of some investors potentially getting more than others for the same investment either (sorry james!)- but that is just me.. + it raises the question of what happens to any profit which is not returned to lenders?
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SteveT
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Post by SteveT on Feb 19, 2016 22:39:57 GMT
james, can you explain to me why you think the Accrued Interest Scheme would apply to the sale of a loanpart on the Ablrate SM but not to the sale of a loanpart on the FS SM? In both cases the buyer pays for the outstanding capital (adjusted for any premium or discount charged) plus an amount equivalent to the NOTIONAL interest accrued to the date of sale at the original headline rate. In both cases, no actual interest has been paid by the borrower at the time of the SM sale and there is no certainty that such interest ever will be paid (until it actually is, at the end of the loan term). FS have clearly gone to some lengths with their tax advisors to establish that HMRC treat such transactions as the sale of a Simple Debt and that the Accrued Interest Scheme is not applicable. They provide an explanation of this on their website. I don't believe that, simply by splitting the sale transaction across 2 entries in their transaction record, an Ablrate SM sale would be treated any differently to a FS SM sale by HMRC. Both are peer to peer loans, sold prior to any interest having been paid by the borrower and with no absolute certainty it ever will be. ablrateandy, are you able to clarify this with Ablrate's tax advisors? It seems critical that this be nailed down, else the tax statements provided by Ablrate to lenders at the end of the tax year may be incorrect / misleading in terms of the "Interest Earned" figure. Many thanks.
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