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Post by ratehopper on Sept 18, 2016 18:13:07 GMT
I am considering an investment in BM but, given that it is different to other P2P platforms, I would like to understand the structure of the investment and the protection it gives the investor in the case of the Bondmason group of companies going into liquidation or administration. I have looked on the Bondmason website for clarification but I cannot fully get to the bottom of the nature of the "receivable" and how it is protected.
From what I have ascertained so far on this forum, there is a special purpose company called Bondmason Client Limited (BCL) which is there to provide protection from a liquidator or administrator in the event of platform failure. This is a separate company outside of the Bondmason group of companies. So, my first question is who is the ultimate beneficial owner of this company and what link (if any) does it have, direct or indirect, to the Bondmason group of companies or any ultimate beneficial owner of any company in that group?
I assume that BCL is the company that acquires the loans in the underlying P2P platforms and is the owner of these loans. I assume also that BCL packages up each loan into investment size units giving rights to proportions of the loan (and interest on the loan) which investors in the Bondmason platform then purchase. It is these units which are the "receivables". To me, this arrangement is similar to depository receipts in the equity markets (where shares in an overseas listed company are purchased by an investment bank and the investment bank packages up units in the underlying shares to sell to investors on the home market in the form of listed depository receipts). In relation to depository receipts, the shares are normally owned and held by an independent third party custodian that holds the shares in trust so that they are protected for the benefit of investors in the depository receipts.
I assume that BCL similarly performs a custodian role so that the loans are protected by a trust in favour of investors. In this way, no rights to the loans are owned by the Bondmason group of companies which, to put it bluntly, means that an administrator or liquidator couldn't get his hands on the loans in the event of platform failure. The loans held by BCL would be administered by the designated third party under the "living will" arrangement for the benefit of investors.
I am confused by statements on this forum that investors are entitled to the receivables only and have no rights to the underlying loans. If my assumptions above are correct, then investors would have indirect rights over the loans because BCL as the custodian and owner of the loans, and the designated third party under the "living will" arrangement, would work together to administer the loans for the benefit of investors without being interfered with by an administrator or liquidator of the Bondmason group of companies.
I mention all of this because I couldn't find any reference to BCL or the nature of its role in any of the terms and conditions on the Bondmason website. If anyone can give me clarification on these issues I would be very grateful.
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Post by stevefindlay on Sept 19, 2016 21:05:40 GMT
ratehopper Your understanding is very close to how it works. BondMason Client Ltd is outside of the BondMason group - this makes it 'bankruptcy remote'. Which means that any difficulty of the platform company, doesn't impact the continuing validity of the Receivables (and underlying loans). All BondMason Client Ltd does is lend / sell Receivables. You are correct that clients don't have a direct right over the loans, as we are only able to pass on the cash flows - i.e. not any security etc. Practically speaking BCL is the custodian of the loans and full economic interests though, and the BondMason group has a living will arrangement so that client positions will be managed out in the event of platform failure. Please ask if you would like any further information on this.
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Post by ratehopper on Sept 20, 2016 11:19:48 GMT
Many thanks for the reply Steve.
I understand the living will arrangement. This seems a common arrangement to all P2P platforms, I assume because the FCA insists on it as a condition of becoming FCA regulated.
However, the third party coming in to manage client positions in the event of platform failure is only in as good a position as the structure it inherits.
I would therefore like to understand who owns and controls BCL and what reassurance you can give that BCL (and its controller) will act in the best interests of investors should there be a platform failure. BCL owns the loans and it will be important that it is obliged to co-operate with the third party manager under the living will arrangement.
I understand that investors don't have a direct right over the loans because of the way the receivables work but if BCL acts as a true custodian then it should exercise its rights (including security) over the loans to secure the best outcome for investors.
What I would have expected is a structure involving an independent professional corporate trustee (something like Law Debenture) that would act as custodian. I understand there is a cost to this but it would be very reassuring to investors. What I fear is that BCL is simply under common control with the same shareholders who control the Bondmason group of companies. While this might make BCL bankruptcy remote, I am not sure that it would reassure investors that shareholders who business has failed are then going to be incentivised to spend time protecting the interests of investors.
I apologise if I am sounding negative but with conventional P2P platforms the investors own the loans. I would just like to be reassured that in your case, where BCL owns the loans, that the position for investors is, for all intents and purposes, equally robust.
As a final question, can you point me to the section of your website where the role of BCL is explained? I couldn't find it.
On a more positive note, I like what Bondmason is trying to do!
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Post by stevefindlay on Sept 21, 2016 19:53:46 GMT
It may be worth reiterating here, a point made on another thread, which is that the BondMason structure effectively gives you a second layer of protection, as compared to a direct relationship P2P Platform. The model has been reviewed for robustness and suitability by three different law firms over the last two years, and any suggestions for improvements have been implemented. For example, BCL will act in the best interests of all clients to return client funds as a priority (e.g. by exercising security), as BCL is on the other side of this equation and doesn't want to suffer any losses - so interests are well aligned. We have 1 loan in default at present (out of 1,000+) - and the strength of the relationship between BCL, BondMason and BondMason's clients is being illustrated as we do everything in our power to seek full recovery. Our actions here will demonstrate the reality (and value) of the structure and the relationship. To answer some of your specific questions: - BondMason and BCL do not have common ownership - each shareholding structure is very different - The living will agreement ensures that BCL survives until (at least) all loans are recovered and repaid, regardless of what happens to BondMason And please don't worry - I don't see your questions as negative - they are very reasonable in the context of seeking to understand the structure and interactions. This illustration indicates how the structure works in basic terms: www.bondmason.com/how-it-works Although BCL is strictly a client of BondMason (it sells Receivables which are bought by other clients of BondMason) which is why there isn't a section dedicated to it specifically on the site. |
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Post by ratehopper on Sept 22, 2016 12:59:13 GMT
I see from Companies House that you are a director of both Bondmason Limited and Bondmason Client Limited so there is a strong element of commonality between the two companies. I suppose I could investigate the shareholding structures myself but it would be easier if you would disclose them on this forum as it can hardly be a secret.
As I understand the structure, Bondmason advances investors' money to Bondmason Client Limited (BCL) which BCL uses to buy loans through other P2P platforms. In return for the advances, BCL issues receivables to investors reflecting the capital and interest payable under the underlying loans. The risk is with the investors so that if an underlying loan defaults there is no receivable and therefore no liability for BCL in respect of the non-payment. This ensures BCL remains solvent because the default is not taken onto its books as a liability. Because BCL only buys loans and issues receivables there are no other (significant?) creditors of BCL apart from ordinary administrative expenses (which I assume the Bondmason group absorbs anyway?). This protects investors as there is no real likelihood of BCL becoming insolvent and, as you say, it is not part of the Bondmason group and its assets (i.e. the loans) are not accessible to an administrator or liquidator in the event of platform failure. Have I got all of this right?
I am probably driving you mad but in a way this thread might be reassuring to other potential investors.
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littonowl
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Post by littonowl on Sept 22, 2016 14:56:11 GMT
I see from Companies House that you are a director of both Bondmason Limited and Bondmason Client Limited so there is a strong element of commonality between the two companies. I suppose I could investigate the shareholding structures myself but it would be easier if you would disclose them on this forum as it can hardly be a secret. As I understand the structure, Bondmason advances investors' money to Bondmason Client Limited (BCL) which BCL uses to buy loans through other P2P platforms. In return for the advances, BCL issues receivables to investors reflecting the capital and interest payable under the underlying loans. The risk is with the investors so that if an underlying loan defaults there is no receivable and therefore no liability for BCL in respect of the non-payment. This ensures BCL remains solvent because the default is not taken onto its books as a liability. Because BCL only buys loans and issues receivables there are no other (significant?) creditors of BCL apart from ordinary administrative expenses (which I assume the Bondmason group absorbs anyway?). This protects investors as there is no real likelihood of BCL becoming insolvent and, as you say, it is not part of the Bondmason group and its assets (i.e. the loans) are not accessible to an administrator or liquidator in the event of platform failure. Have I got all of this right? I am probably driving you mad but in a way this thread might be reassuring to other potential investors.Absolutely! Been busy researching BondMason on and off all day, but thanks for doing some of the donkey-work on my behalf, ratehopper...
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arbster
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Post by arbster on Sept 22, 2016 15:15:42 GMT
You are correct that clients don't have a direct right over the loans, as we are only able to pass on the cash flows - i.e. not any security etc. Does this affect our ability to offset defaults against interest earned?
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Post by ratehopper on Sept 22, 2016 19:42:55 GMT
Thanks littonowl. Glad to hear you like the donkey work. We investors have to stick together!
The fact is I like what Bondmason are trying to do. It is like a "fund of funds" concept in the equities markets. As much as I like to dabble, I don't have the time of the professional investors to make the right choices.
Steve seems really approachable and a nice guy. What I can't understand is that it takes all this effort to extract what is going on and he still avoids answering the direct questions. It is no good telling me that three law firms have reviewed matters - how do I know what they have said? There is nothing on the Bondmason website explaining the definitive structure. If I were in his position, I would think very hard about what it is like to be in our shoes. The deliberate near zero interest rate policy of this Government (and let's not kid ourselves that the Governor of the Bank of England is doing anything but doing the bidding of the Government in keeping Government borrowing costs to the minimum) has had a substantial impact on this country. It has created asset bubbles in the equity markets and the property market and the recent cut in interest rates has only fuelled that effect. Equity markets have risen recently and anecdotal evidence in my area suggests that another surge in house prices is happening now. Sterling fell because of the anticipated monetary policy easing including a cut in interest rates. Laughable that they blame it all on Brexit. Savers and particularly pensioners can't get a decent return on their money. So, what do they do: invest in buy to lets and holiday lets helped by historically low mortgage rates, and invest in equities no doubt helped by their IFA. That in itself is demoralising for our children. They can't compete with pensioners and savers seeking a decent return on their money and buying up properties for investment. Did you see the survey in the news today about the mental health impact on the younger generation? Little hope, encouraged to take on maximum levels of debt, Generation Rent or having to live with Mum and Dad! And then there is the impact on annuity rates and company defined benefit pension schemes of low interest rates driving down gilt yields, forcing down annuity rates and driving up pension deficits. Major companies who would otherwise invest in their businesses are forced to divert money into shoring up their pension deficits. Thanks Bank of England.
The other substantial result of near zero interest rates is the tidal wave of P2P platforms. They wouldn't exist for any other reason. The lower the interest rates go, the more likely it is that savers will desert conventional savings accounts and turn to P2P lending. The FinTech businesses in this country are to be applauded. They are entrepreneurs who have responded to a desperate need created by a cynical Government.
Anyone on this site should be investing in property, equities and P2P, each with a broad spread to diversify risk.
End of story and end of rant.
So, Steve. How about some straight answers to some straight questions? Stop giving us politicians' answers. If you were in a court of law, a judge would simply say answer the question Mr Findlay.
P2P is a product of Government monetary policy. You need us and we need you. Do us a favour, and answer our questions and you will forever have loyal followers, and our money. This platform has enormous potential but if I were advising you from the outset I would have been explicit on your website about exactly how investors are protected. I wonder if the FCA are asking the same questions?
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Post by ratehopper on Sept 22, 2016 19:55:51 GMT
Thank you paul123. Good point. I so want to like BM as well but if this were an issue of securities on the public markets there is no way these communications would reach prospectus standards of verification and transparency. Investors are taking a risk and it is important that we have confidence in the platform.
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Post by stevefindlay on Sept 22, 2016 21:57:42 GMT
Firstly, thank you all for taking the time to consider BondMason and writing in detail here on this forum. We (I) have never sought to dodge any question, so will try to give you further answers here: (Please note, I am away with my family until Tuesday, and am typing on my mobile, so please excuse brevity / typos) ratehopper- Commonality / shareholding structures: BondMason Group Limited has been funded through 3 Angel rounds, most recently led by Par Equity (a notable syndicate in Edinburgh). We have 60+ shareholders, and the split is broadly 40% investor shareholders, 60% management and founders. BondMason Client Ltd has a single shareholder, me, and is funded entirely by me. This is currently under review, with a report due to the Board within 2 months, but that is the current status. - BCL creditors: correct. It's only creditors (aside from me - I've provided most funds by way of an unsecured loan for tax purposes) are the Receivables holders. Costs are negligible / non-existent littonowl - Donkey work: please just ask if you have any questions. arbster- Offset defaults: it depends on your personal circumstances, and we've had conflicting tax advice on that, and it probably merits a separate tax thread. We've not had any losses, so it's a moot point at present. paul123 - Tax statement: we do provide this, it is available the day after year end. - Platform list: correct, we don't disclose the full list. We have started a 'Spotlight On' series though, and are highlighting a platform a month in our monthly newsletter. We've always been happy to disucss this with any client that has called to ask. - Statistics: please see www.bondmason.com/statistics This is due to be updated soon - Opaque: I understand the frustration - we are trying to provide something between a fund of fund type model (I.e. largely passive beyond the yes-no investment decision) but with the individual asset level reporting that is key to P2P Lending. So we probably aren't suitable for those that look to be active at the individual loan level, but I get the point, and we will continue to explore how we can build trust and confidence in our performance and model. Please excuse if I've missed any key questions, just ask again, and I'll try to address them. Although please excuse the delay over the next few days. Many thanks |
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Post by ratehopper on Sept 23, 2016 8:44:40 GMT
Steve
That is much better, thank you. I don't need to know the exact identities of the shareholders but knowing the split is helpful. The key issue though is BCL. While I am sure you have every good intention towards investors, the fact is that there is the potential for a conflict of interest between your position in Bondmason and you as a director and the sole shareholder of BCL. I am also uncomfortable with you being a creditor of BCL. What for instance if you got into financial difficulty? Your trustee in bankruptcy would have a duty to get in all available assets for the benefit of your creditors, including the loan you have made to BCL. If BCL didn't have the funds to repay the loan, the trustee could go after the P2P loans and put investors at risk. This potentially throws the risk of your investment in BCL onto investors. This may all sound fanciful but stranger things have happened and it highlights the weaknesses in the structure. If you are going to report to your Board on BCL you may wish to alert them to this thread. My real preference would be for BCL to be in the hands of an independent professional trustee/custodian with a clear duty to represent the interests of investors.
Enjoy your time away with your family. I hope we are not giving you too much indigestion.
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Post by propman on Sept 23, 2016 15:08:35 GMT
Apologies if this has already been covered, but you show an LTV on each loan, this is not mentioned in the agreement re the receivable. Please would you let us know on what this calculation is based. For instance, I assume that development loans are based upon the value of the land that is being developed. Please would you also indicate whether the valuation is on the assumption that the asset needs to be disposed of quickly (as would normally be the case in the event that security is called) rather than as the result of a full marketing to a willing purchaser.
Many thanks
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amphoria
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Post by amphoria on Sept 23, 2016 15:12:00 GMT
I understand, but regret that BM isn't going to reveal it's partners but the opaque aspect that's really killing me at the moment is the complete lack of any audit trail or history. Suppose I logged in today and I was £1000 down from what I thought I was yesterday - how would I be able to find out why? All I have is a snapshot in time, a current balance. There's no statement, no report I can run to find out what's happened. It also means I cannot perform simple calculations to provide XIRR or monthly income for example. It's beyond my understanding why this is not yet available. And I'm afraid there are still awkward un-answered questions on this thread like conflicts of interest resolutions or what the three lawyer firms were asked to check for. I also have a test chunk of cash on BM but until more is provided, it's going to be difficult to increase. In case you haven't found this out already, you can copy and paste the tables from Your Investments a page-at-a-time into Excel, which would enable you to do some reporting and calculations. The symbols don't get carried across, but the key data does including interest and principal repaid for each loan. Repaid loans are also not removed from the list which is useful.
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Post by stevefindlay on Sept 23, 2016 17:32:49 GMT
Apologies if this has already been covered, but you show an LTV on each loan, this is not mentioned in the agreement re the receivable. Please would you let us know on what this calculation is based. For instance, I assume that development loans are based upon the value of the land that is being developed. Please would you also indicate whether the valuation is on the assumption that the asset needs to be disposed of quickly (as would normally be the case in the event that security is called) rather than as the result of a full marketing to a willing purchaser.
Many thanks What we DEFINITELY DO NOT do is show LTV based on development value (or hope value). This is largely meaningless in our view, and should only form part of an equity case, not a credit case. The LTVs are as supplied to us: - on Invoice discount finance this is either the value of the invoice, or if it is supply chain finance this may show as '100%', but actually the true LTV will be closer to 60-70% - for property loans it is generally: (a) for bridge finance: one of (1) the purchase price (2) the resale value or the (3) 90 day reseale value (b) for property development loans it is generally 90 day resale, plus 3rd-party-surveyed costs - for assets it is the current value of the asset
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Post by stevefindlay on Sept 23, 2016 17:50:49 GMT
I understand, but regret that BM isn't going to reveal it's partners but the opaque aspect that's really killing me at the moment is the complete lack of any audit trail or history. Suppose I logged in today and I was £1000 down from what I thought I was yesterday - how would I be able to find out why? All I have is a snapshot in time, a current balance. There's no statement, no report I can run to find out what's happened. It also means I cannot perform simple calculations to provide XIRR or monthly income for example. It's beyond my understanding why this is not yet available. And I'm afraid there are still awkward un-answered questions on this thread like conflicts of interest resolutions or what the three lawyer firms were asked to check for. I also have a test chunk of cash on BM but until more is provided, it's going to be difficult to increase. -Platform partners: as discussed before, we aren't going to disclose these en masse. We invest a lot of time and effort to identify, meet and assess each platform. We've met over 50 possible direct lending partners and we aren't going to provide this IP. I'm sorry, but this isn't going to change. - Complete lack of audit trail: that is unfair. You can download your current positions at any point. And see a summary of performance on your dashboard. In reality, most of our clients haven't requested this and our service is more 'passive' than 'active', so providing a day by day history, or download feature hasn't been a priority. We may do this in the future though. - Beyond my understanding why this isn't available: The reason it's not been done yet is because we charge 1%, not 2-5%,and so have limited resources which we prioritise accordingly. For example Ratesetter has probably 20x our resources, However, I'm pretty sure we provide a lot more transparency at the individual loan level that you have they do. - Suppose I logged in and lost £1,000: you should phone or email and demand an explanation, which we would provide for you in detail. We've not lost anyone any money to date, and hope this continues for a long time to come. - Awkward unanswered questions: we remain very happy to answer questions. Please continue to ask if any remain outstanding. paul123 - I'd politely suggest that it seems you want to be a lot more hands on with your P2P Lending than our platform and service is likely to cater for, so you may be better off going direct to each platform, and BondMason probably isn't for you.
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