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Post by chris on Jun 20, 2016 6:57:01 GMT
#227 (D**field) shows that AC can, on rare occasion, bring forward loans that are slap-bang in SS territory (and, I might say, share rather better information in the process). The problem is they're rare as hens' teeth these days. I can't remember the last time I received a "New Loan" email from AC that I even bothered to study. As says mrclondon , what's the point wasting time investigating small sub-10% loans where we're likely to get £100-£200. My suggestion to AC is to work out how and why it secured #227 and target more of the same. We secured that deal as we directly involved several directors to derisk the proposition and try and make sure we had credible exit routes. It's been noted before the quality of the documentation produced on that one in contrast to our competitors. I would like to find more like that one too, and am applying pressure where I can.
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Post by reeknralf on Jun 20, 2016 7:01:20 GMT
Avoiding riskier loans I understand, but what is the commercial rationale for avoiding bigger loans? If it's fear of not filling them, this would seem to be a self-fulfilling prophecy.
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SteveT
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Post by SteveT on Jun 20, 2016 7:13:27 GMT
We secured that deal as we directly involved several directors to derisk the proposition and try and make sure we had credible exit routes. It's been noted before the quality of the documentation produced on that one in contrast to our competitors. I would like to find more like that one too, and am applying pressure where I can. Surely the tidal wave of low-cost lender capital you're now surfing (from those to whom 4% "semi-assured" sounds attractive) gives you a huge advantage over SS, MT, FS and others in that space, if you choose to deploy it. I'd much rather put substantial sums into a properly secured, well documented loan at 11% (or even 10% if it's bullet-proof) than bid blind for the latest sketchily-described SS offering at 12%, with fingers crossed that I can sell it on before the security is tested. Whoever devised the strategy behind the QAA/30DAA deserves a very large bonus indeed, but if that (unique?) competitive advantage is only leveraged for growth in the sub-£500k 7-9% sector then it will have been wasted (IMHO).
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Post by chris on Jun 20, 2016 7:18:43 GMT
Avoiding riskier loans I understand, but what is the commercial rationale for avoiding bigger loans? If it's fear of not filling them, this would seem to be a self-fulfilling prophecy. To a degree it's a question of funding them. As I understand it by going for the riskier end of the market SS are able to charge high rates and pay underwriters very large sums to both fund deals and hold large portions of the drawn loans. That's an approach we were using until the middle of last year but underwriters demanding increasing margins and bonus payments eventually priced us out of the market leading to the huge drop in origination. Now we have alternative funding sources in place we can start moving back in that direction.
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Post by chris on Jun 20, 2016 7:22:08 GMT
We secured that deal as we directly involved several directors to derisk the proposition and try and make sure we had credible exit routes. It's been noted before the quality of the documentation produced on that one in contrast to our competitors. I would like to find more like that one too, and am applying pressure where I can. Surely the tidal wave of low-cost lender capital you're now surfing (from those to whom 4% "semi-assured" sounds attractive) gives you a huge advantage over SS, MT, FS and others in that space, if you choose to deploy it. I'd much rather put substantial sums into a properly secured, well documented loan at 11% (or even 10% if it's bullet-proof) than bid blind for the latest sketchily-described SS offering at 12%, with fingers crossed that I can sell it on before the security is tested. Whoever devised the strategy behind the QAA/30DAA deserves a very large bonus indeed, but if that (unique?) competitive advantage is only leveraged for growth in the sub-£500k 7-9% sector then it will have been wasted (IMHO). It can be leveraged up in the £1-2m level but beyond that there's too much concentrated risk at the current account size and becomes a pain to sell down if our origination exceeds demand. There are a lot of things that need to be properly balanced for P2P sites to work well in a sustainable form.
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SteveT
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Post by SteveT on Jun 20, 2016 7:33:02 GMT
It can be leveraged up in the £1-2m level but beyond that there's too much concentrated risk at the current account size and becomes a pain to sell down if our origination exceeds demand. There are a lot of things that need to be properly balanced for P2P sites to work well in a sustainable form. OK, I get that. But if I were an AC shareholder (which I'm not, btw) I'd be challenging the team to work out how to scale the lower-cost capital base as fast as the origination of larger 10-12% high quality loans requires ( as well as the progress being made in smaller 7-9% loans). The QAA/30DAA is a notable achievement but £23m is but a gnat's bite out of the UK deposit savings sector. That could easily become £100m / £200m / £500m with some targeted marketing and the obvious next steps of a 6MAA / 12MAA to help stability.
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SteveT
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Post by SteveT on Jun 20, 2016 8:19:27 GMT
It can be leveraged up in the £1-2m level but beyond that there's too much concentrated risk at the current account size and becomes a pain to sell down if our origination exceeds demand. There are a lot of things that need to be properly balanced for P2P sites to work well in a sustainable form. Given what you say, I'm confused about the 2 very large property loans (£7.2m and £4.4m) shown in the pipeline, both offering just 8%. At that level there will be very limited take-up by MLIA lenders and I'm not even sure whether 8% meets the rate threshold for the GBBA (if they are GBBA-eligible then that must be the better way of holding them). Surely much of these 2 will have to be funded by the QAA/30DAA, which certainly poses some risk concentration challenges.
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happy
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Post by happy on Jun 20, 2016 10:39:10 GMT
Surely the tidal wave of low-cost lender capital you're now surfing (from those to whom 4% "semi-assured" sounds attractive) gives you a huge advantage over SS, MT, FS and others in that space, if you choose to deploy it. I'd much rather put substantial sums into a properly secured, well documented loan at 11% (or even 10% if it's bullet-proof) than bid blind for the latest sketchily-described SS offering at 12%, with fingers crossed that I can sell it on before the security is tested. Whoever devised the strategy behind the QAA/30DAA deserves a very large bonus indeed, but if that (unique?) competitive advantage is only leveraged for growth in the sub-£500k 7-9% sector then it will have been wasted (IMHO). It can be leveraged up in the £1-2m level but beyond that there's too much concentrated risk at the current account size and becomes a pain to sell down if our origination exceeds demand. There are a lot of things that need to be properly balanced for P2P sites to work well in a sustainable form. I have to say this is one of the most interesting, informative and well balanced threads I have seen in many a month and it has taken a very different path to it's initial topic, thanks to all contributors. What is blindingly clear to me is that behind AC there is a massive amount of planning, care, attention and above all intelligence and understanding that gives me huge confidence in this platform. They have not just gone and found a simple formula that works right now and just kept doing it regardless of any potential future risks or changes coming down the road, they are looking to adapt and develop their business model for the future. As an IT professional since the '80s I understand how technology can either drive a business to success or drags it to it's death, what I see in AC is the use of IT to create true uniques and competitive advantage in their marketplace, I don't see that anywhere else in their direct P2P competitors... Put it this way, if SS launched a GBBA style account tomorrow, at lets say 10%, I would not touch it with a very long barge pole, for a start there are way too many loans on SS's books that would keep me awake at night if I knew I had a chance of holding some of them, much rather my 7% at AC thanks very much....
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Post by chris on Jun 20, 2016 11:09:22 GMT
It can be leveraged up in the £1-2m level but beyond that there's too much concentrated risk at the current account size and becomes a pain to sell down if our origination exceeds demand. There are a lot of things that need to be properly balanced for P2P sites to work well in a sustainable form. Given what you say, I'm confused about the 2 very large property loans (£7.2m and £4.4m) shown in the pipeline, both offering just 8%. At that level there will be very limited take-up by MLIA lenders and I'm not even sure whether 8% meets the rate threshold for the GBBA (if they are GBBA-eligible then that must be the better way of holding them). Surely much of these 2 will have to be funded by the QAA/30DAA, which certainly poses some risk concentration challenges. I'm not familiar with the £4.4m loan, but the £7.2m one I know is comprised of multiple tranches with the first drawdown being around £2m. We also have underwriters and other funding sources to help draw each loan.
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Post by mrclondon on Jun 20, 2016 11:31:29 GMT
It can be leveraged up in the £1-2m level but beyond that there's too much concentrated risk at the current account size and becomes a pain to sell down if our origination exceeds demand. There are a lot of things that need to be properly balanced for P2P sites to work well in a sustainable form. Given what you say, I'm confused about the 2 very large property loans (£7.2m and £4.4m) shown in the pipeline, both offering just 8%. At that level there will be very limited take-up by MLIA lenders and I'm not even sure whether 8% meets the rate threshold for the GBBA (if they are GBBA-eligible then that must be the better way of holding them). Surely much of these 2 will have to be funded by the QAA/30DAA, which certainly poses some risk concentration challenges.
Yes I'm similarly confused by these two pipeline loans. Admittedly we don't yet know the LTV of the £7.2m one, if it was 40% or less the 8% may be justified, but higher than that with development risk, no. The £4.4m is showing as 65% LTV, and in the absence of any other details looks way under priced.
I've not studied #250 the 2nd biggest loan* currently live on the platform (£2m) in excessive detail as the 8.5% yield against share security seems low even at 55% LTV. At 10% I would have been in, at 8.5% I still need persuading. And given £2m is no longer a "large" loan the overhang of availability is indicative I'm not alone in my assessment.
My fear is AC will interpret the lack of demand for #250 and those two pipeline loans as evidence AC lenders are too limited (in number and depth of pocket) to support the origination of large loans, when in reality it will simply be a reflection of under priced yield to lenders.
EDIT:
* actually joint 2nd biggest along side the 5 tranches of Mid. Trade
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oldgrumpy
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Post by oldgrumpy on Jun 20, 2016 12:01:52 GMT
While AC is sloshing with surplus lenders' money, AC will market the loans with the lowest rates they think they can get away with.
With the probable losses I expect from plumber and lens maker (where security did not pass muster in the crunch) and possibly a bit more from Holiday Park, (I have dodged some of the other "dogs"), AC is by no means special as far as lenders are concerned. The drop in rates from 10-15% to 6.5%-9% (rarely 10%) due to AC policy means we have to wonder whether the platform has become too risky at those levels. Yes, I'm twitchy on some of SS's offerings, but 12% is mainly paying for the perceived chance of problems (just don't put too much on each loan) and (of course) on ABL, SS, MT, FS, and even Fish Cakes, if I want to lend a mid three to low four figure amount I can, somewhere, usually immediately.... not just the occasional £20+ or £80+.
At 6.0-6.2% even now I can lend what I want almost when I want on RS, with provision fund (which AC top-brass derided so eloquently in 2013).
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Post by mrclondon on Jun 20, 2016 12:18:58 GMT
And as this post on the SS board shows, SS are beginning to receive some credible press coverage. City AM is a free morning paper distributed at tube stations in and around The City and Canary Wharf, and is read in preference to the Metro by "city types" on their morning commute.
I'm certainly not knocking AC for the sake of it, and I hope (and expect) the packaged account model works out. Nor am I advocating SS to any but the small number of lenders able to carry out their own detailed due diligence. The two approaches target different lenders.
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Post by andrewholgate on Jun 20, 2016 13:11:36 GMT
chris – different market space? On their 3 latest deals Assetz were a well-known partner of the (Mancs-based) borrower (Simply Slidingawayintothehorizon are miles away on the south coast btw), you were named as an exit partner on the debenture for the property in Manchester that has now become PBL117, you have a cost of capital much closer to 3% than their 12%... how come you didn’t get the deal? On some other SS deals no question you’re probably right, but that still begs the question how come you get very few deals at more than 9%. Or, in absolute terms, really not enough deals (drawing down last year, drawing down this..) full-stop. Different market space cannot be the answer when you have on the one hand SS tearing away with a £120m live loan book (& TC/FS/MT etc all harvesting away happily north of 11%), & on the other LI/W & co hundreds of £m ahead of you on the lower-rate segment. Which is your market space? Sorry to be blunt. (And with admiration for your efforts btw, you have a thankless task Chris defending AC here.) Assetz Property possibly, but not AC. Whilst there are links between the businesses if the Property team aren't aware their customer needs funding, then they won't send us a lead. I am asking questions though.
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Post by Butch Cassidy on Jun 20, 2016 13:30:52 GMT
chris – different market space? On their 3 latest deals Assetz were a well-known partner of the (Mancs-based) borrower (Simply Slidingawayintothehorizon are miles away on the south coast btw), you were named as an exit partner on the debenture for the property in Manchester that has now become PBL117, you have a cost of capital much closer to 3% than their 12%... how come you didn’t get the deal? On some other SS deals no question you’re probably right, but that still begs the question how come you get very few deals at more than 9%. Or, in absolute terms, really not enough deals (drawing down last year, drawing down this..) full-stop. Different market space cannot be the answer when you have on the one hand SS tearing away with a £120m live loan book (& TC/FS/MT etc all harvesting away happily north of 11%), & on the other LI/W & co hundreds of £m ahead of you on the lower-rate segment. Which is your market space? Sorry to be blunt. (And with admiration for your efforts btw, you have a thankless task Chris defending AC here.) Assetz Property possibly, but not AC. Whilst there are links between the businesses if the Property team aren't aware their customer needs funding, then they won't send us a lead. I am asking questions though.andrewholgate whilst you are on here perhaps you could also answer a couple;
Why was #166/#292 distributed in such a way to alienate MLIA investors? Previously rollovers were offered to existing holders - has this policy now ceased? To reinvest just the repaid capital from #166 , at the allocation rate given, I need approx. 200 loans &/or £100M of drawdowns - how long is that likely to take? Could you give any positive signals to MLIA holders who have supported AC from the early days?
Many thanks
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Post by andrewholgate on Jun 20, 2016 13:51:07 GMT
Thank you all for the discussion. This has been quite interesting. I want to add some colour to the supposition that some are making about the model and where we are going. I'm not going to talk about other platform's models and any inference in anything I say is purely that. We stormed through 2014 we created a lot of press about us and got us noticed in the right places. This lead to some big questions of the business; what direction do we head in and how do we do it. As we were asking those questions, a few things happened. - We landed institutional lines - Underwriters chose to ask for larger fee shares to underwrite loans - We hit a raft of defaults A few other things happened but above are the main points. The effect of institutional lines was they were seeking a wider spread of loans at ticket sizes below £750k, but more like £100k to £300k was their target. This was about 1/3rd the size of our average deal and in order to meet the requirements, we had to shift focus. That we have done, and we are now writing more deals than ever before, just in smaller £ values. There was a comment made about platform valuations being driven by headline numbers. That is partly true. Our backers aren't bothered by whether we are the 5th or 3rd largest at present, they want to know our model will survive and thrive. They see the diversification of loans as being one key part, SME, BTL, Bridging and Development, plus Renewables. A diverse model that is not reliant on any one sector. Come the next downturn, as an example, (which is coming as bond yields are starting to invert), as in any down turn, the bridging sector is hit hardest. We have steered away from land bridges (land with planning but no development yet) with the exception of a few deals where we felt comfortable there was a solution. Land with planning plummets in value in a downturn. I fully expect that to happen. So diversity is key to a sustainable business so that you can ride any changes in markets. A clear example in this sector were the platforms that only did turbine funding. A huge change in FIT rates saw the market evaporate and those businesses have to change direction or die. I don't care if someone else is writing £xm a month. The business has a plan and we are sticking to it. It is only now that those plans are showing fruit, but the indicators are there as I will explain. We were to reliant on a number of HNWs to underwrite loans. We didn't have enough retail lenders to fund the loans so we needed deeper pockets. However, those deeper pockets started to game the system and make life very hard indeed to get deals away. In the end, we made a decision to stop doing larger loans and come up with a system to underwrite at a lower cost of funds. We did that and it has been so successful that we have now raised the cap on our lowest pricing from £500k and moved it up to £2m. So we are getting more loans now, and soon the average deal size will start to go up again, increasing the diversity in what we do. The business would have been unviable had we stuck with the HNW underwriters, so we changed tack. They still play a part, but we had to change. The defaults we got impacted on confidence levels. We have had 17 loans go into a formal process and 9 of those have been fully collected out, 5 others are looking promising to get full recovery and the rest will have a loss of some kind. However, most of the defaults came in the 6 months of Q4 14 and Q1 15. Lenders ran scared which affects liquidity. However, we have always priced for risk. The loans that defaulted were priced at a higher rate because there was more risk. Also, risk isn't just LTV but behavourial factors as well, such as the management team, market sector etc. Take FF as an example, I felt there was a higher risk of default on that loan than any other as there were warning signs in the business model etc, but the background of the individual suggested if it did default we would be OK. It did, and we were. You got a good rate of return there because even though the LTV looked OK, the risk was perceived to be higher. I wanted to avoid more loans going bad. So we have moved down the risk curve to moderate to lower risk. This has seen a drop in rates, but you have also seen a lower default rate. 1-2 loans per quarter rather than 5-10 per quarter. So how do I back up my statements? In Q3 2014 we did 27 loans. However, 8 of those were rollovers that later formally defaulted (be very wary of rollovers, the can is being kicked down the road...). So we actually did 19 new loans. This quarter we will do 40 loans, but headline debt will only be slightly above Q3 14. More loans, wider spread of risk. That is what I want in the business. We are taking new instructions every single day and the pipeline is healthier than ever. I will caveat what chris said, in that we have the potential to do a £10m-£15m month very soon, I'm not saying it will be June or July, but soon. There after we keep growing. I can see data you can't and I have never seen the pipeline so active. The last 12 months have been tough. You have been patient with us and that you for being so. Please, just a little bit more. Yes rates are lower, but so is the risk and defaults are down. We are trying to give you diversity and we are delivering on that. We have now taken the brakes off in terms of larger deals, which should make us even more competitive. Just a little more patience please. A |
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