Launch of post-term bonuses and cashback on new tranches

A change in tack from the economics lesson explaining why we should expect lower rates as the 7%ers were still 20-40x oversubscribed.

The move to def and ia not paying monthly was done by SS (as they were then) with notice, but for all loans. I assume they can tweak their approach if they choose (again with notice, not that the SM guarantees SN exit route).

I'm not seeing much innovation here. More a move (possibly forced by the FCA) to an approach used by other platforms. SS was doing something unusual by keeping current the interest payments for loans that were in default (using the definition here of default being any loan past it contractual redemption date). Instead, it seems now we might well move to the more conventional approach (used by AC, TC etc) of accruing interest at a higher default rate, post redemption date. This hopefully might focus the borrower on making the loan current again (and dropping the accrual rate back to say 12%). You're correct it will further differentiate loans by credit quality since, of course, for those loans with an expectation of a recovery well above par, the default rate might actually be crystallised. For those with weak recovery prospects, the default fault rate is completely illusory since you will probably not be receiving any accrued.

When AC experienced default on pretty much all their early large 12% bridge loans, the 3% higher default rate (15%) did produce a temporary improvement in the liquidity of these loans. This did allow many underwriters like myself to exit at par and pass the risk to the "carry monkeys". In some cases they did well, in some cases not so well. Eventually though this faded as lenders realized they were likely to have to hold through recovery. It's fairly easy to predict loan liquidity on SS using a multi-variable model using residual maturity, coupon rate, loan size, loan trading volume, expected recovery value (LTV) etc. So for those in my syndicate who trade SS loans as a pure liquidity trade, rather than a buy-and-hold trade, then this will favour an increased weighting toward expected recovery values in the loan ranking algorithm, especially as residual maturity falls. 

Frankly, stepping the coupon, post default, doesn't really solve the issue. Stepping the coupon prior to default would be a better way to replicate the changing risk. But neither is a substitute for variable pricing. 

What do you mean 'get priority on the SM'?

They're trying to tackle it at both ends by encouraging further investment in tranches so the whole system doesn't collapse, and bumping interest post-term.

Currently, if Lendy release a new loan or loan tranche that is not fully subscribed, then they may offer favourable terms to underwriters. Those loan units are subordinate in the sale queue on the SM. You will notice this if you put a loan part up for sale and find the sale queue is less than the amount available. As an example DFL012 has £865k available but the queue is £571k.

If Lendy are going to offer cashback on additional tranches and allow those units to be sold on the same terms it will anger existing lenders because the sales queue will be uncontrolled and even more illiquid.

First signs of changes. default loans/Live loans gained an extra column, Bonus Accrual ranging from 3% to 6% for defaults, up to 2.5% for live.