Lower interest rate on new deals & net return after defaults

Cyril - I hope you are well and it's been a while since we spoke.

The default data is being released soon, but some highlights are:
- 9 loans fully recovered including outstanding interest (bar one where lenders agreed to a reduction in the default interest)
- 8 still in a process with a worst case loss of £1.3m from 4 of these loans
- I say worst case because there are still other avenues to explore in order to recover additional sums.
- With £108m funded to date and £10m+ of interest, our projected loss is c1.25% of everything we have funded

In terms of timings of defaults:
- Of the 17 loans (this discounts anything after 31/3/16 BTW which is only 1 additional loan), 13 defaults happened in Q3 14 - Q1 15.  Of these 13, 8 loans were from one broker who we no longer use.
- Since Q2 15, we have had 3 defaults.  One of which (the school) repaid in full very quickly.  That is also 3 out of c100 loans in that time.  
- The majority of the loans that have defaulted were written between Q4 13 and Q3 14.  That was our first 18 months of trading, and again 8 loans from one broker (no excuse but when you are trying to grow sometimes you have to dance with the devil).

We haven't masked losses behind a provision fund (while we offer them, the above figure are BEFORE provision fund pay outs) to say no-one has lost a penny.  When you lend money, expect to lose some, even if there is security and a provision fund.  We haven't masked defaults by rolling over loans more than once.  We have rolled loans once to try and get a solvent outcome, we will never roll twice or more.  We provide the most detailed on-going reports on your investments in the industry.  I don't see anyone else providing the updates we do, and also the on going dialogue that we provide.

In terms of pricing, the market is competitive and to stay in the right credit spectrum we have to price accordingly.  We have always priced for risk first and then liquidity.  The latter hasn't been too much of a problem recently.

I don't want to throw any old (it's a northern phrase) on the platform.  Maintaining the credit quality we have enjoyed in the last 12 months or so is key.  I've invested heavily in my credit team and we have 5 dedicated professionals looking not just at the credit on the way in, but the on going monitoring of the book.  I spent time yesterday looking at increasing the data flows we get to improve further what we are doing.

Over the next few months I am to issue a gold standard of credit monitoring that will be far above what others in the industry have released.  I hope that the data will prove we are good at what we do.

Both

Rates on other platforms (SS, TC) appear to be holding up far better than on AC. I don't see why anyone would invest in an 8% bridge on AC when they could get 12% for an apparently similar deal on SS. The same applies to TC, plenty of 'similar' loans on offer at significantly higher rates.

I don't have a problem with the default situation on AC, but I tend to be cautious and ditched the big bridging loans before they hit choppy waters. The only suspended loan I hold is the Plumber, where further repayments look unlikely.

I always follow the advice I was given during my short time with FC. If it's repayment time I don't want excuses, I want me money.

Using this philosophy the optician took an early bath and I have quietly disposed of my holdings in Leeds and that hotel in wales that I can never spell properly (both at par).

I may only be averaging 10%, but I am happy with my risk level

I think Leeds is a good example of the mistake AC are making in their argument for avoiding loans at risk of not refinancing

I don't mind holding Leeds, in fact I've flipped and flipped and flipped the discount market. There are loans that may not repay on time and need to be extended - but if the security is decent (a big if) then that's fine with me.

In fact I'd rather have higher rates on loans that may not repay on time than lower rates on loans that do (so long as they both eventually repay). After all, I want to lend my money out - I'm not in a rush to get it back and I'd rather see a higher rate paid.

Isn't is the MLIA market? I don't care if a loan is extended to be 3 years at 11% instead of 9 months at 9% - so long as I get the money at an equivalent rate higher than 9%pa in the end...

I think Mike makes a good point. I can't help but wonder whether AC's experience of dealing with the fallout from the bridging loan broker that dumped all his problems on us has affected their judgement as to where the risk of capital loss lies. It really doesn't matter if it takes five years to realise a defaulted loan if the LTV against physical asset security is low enough to absorb the ongoing interest accrual.

The biggest capital loss on default percentages appear to be those loans that lacked physical asset security that could be "seized" on default of the loan (e.g. plumber, optical, telecoms)  with (hopefully) smaller loss percentages on one or two whose asset valuations were overstated (e.g. Ipswich based on wrong rent roll, and Anglesey based on wrong state of completeness and/or wrong rent roll).

I'm no longer evaluating most of the new AC loans as I've no intention of lending on them at such rates, so I will confess that I'm not able to form an opinion as to the extent to which AC are learning from past defaults in their selection of new loans. However of those that I have examined, the "fire sale" LTV's (aka restricted marketing) seems too high to justify sub 10% rates. As I've said on another thread, it is possible to cherry pick deals on other platforms at 10-12% which have comparable security to the AC loans. 

But its not just the rates that makes AC unattractive to me at present. The average loan size is now much lower than it has been, and its not easy to accumulate the 4 or 5 figure sums in individual loans which is necessary to cover the time spent on loan due diligence.  Most of SS's success can be attributed to the policy of writing relatively few very high value loans.   

As a future AC shareholder, I'm not necessarily that concerned as the packaged account route is almost certainly the best long term business strategy. However at present AC have little to offer me as a p2p investor who is reasonably comfortable at carrying out his own due diligence and building his own risk model ... which should be the MLIA target demographic.

Thanks, andrewholgate for the information. Sometimes I get overwhelmed by the number of votes, "bad news"... so was trying to get a hold of yield after default.


Since I cannot export an indication of situation, I manually looked at the top 15 of my 80 loans by amount invested, which represent about half of my book. And I was happily surprised to see that 14 are performing, and 1 is suspended but not overly worrying.

I do see these loans as high yield investment, so expecting some default, but sometimes it is difficult to get a view of the default rate of one's book.