VPC Specialty Lending yesterday announced a NAV return of -1.25% for October which comprised an income return of 78bps offset by a capital writedown of -203bps.
The writedowns related mainly to the company's Avant securitisations (-38bps) and marketplace loan investments (-154bps). The mark-to-market valuation of the Avant securitisations has been affected by credit performance of the underlying portfolios and the remaining proportion of the company's NAV in these securitisations is 5.4%.
VSL's marketplace loans have generally not met expectations and the company has stopped acquiring loans from platforms that have underperformed. The whole loan portfolio comprises loans from seven platforms and the company is actively investing in only two of these platforms. In addition, October returns were impacted by increased seasoning of the marketplace loan portfolio.
VSL is aiming to recycle capital away from marketplace loans into balance sheet loans which now account for 47% of NAV (22% at December 2015). The unlevered return on the balance sheet loan portfolio is currently 13%.
VPC Specialty Lending has been the worst-performing fund in this sector in 2016 with a NAV return of 1.1% YTD. The company has been eager to emphasise the performance of the balance sheet loan investments which are performing well. It remains to be seen if any further damage to NAV performance comes from the Avant securitisations or marketplace loans before the capital can be redeployed into balance sheet loans. It would seem this is certainly possible given a recent report from Bloomberg which indicated one of the Avant securitisations in which VSL owns a residual position is about to breach trigger levels which would result in the diversion of cash flows to repay the senior debt tranches. The shares currently trade on a 26.4% discount to NAV.|
|A couple of big sellers today but doesn,t look like anything institutional. Market seems to have lost confidence in potential income stream.|
|Must be on a stonking discount to NAV, has a major holder given up?|
Peer-to-peer lending funds
Lending Club raises rates
Lending Club released an update on Friday which included amendments to the interest rates it charges on loans and tighter credit policies. This follows similar measures which were announced in June.
Lending Club continues to observe higher delinquencies in populations with high levels of debt and lower credit scores. The trend is most notable in higher risk loan grades (mainly E,F and G which account for 12% of the overall platform volume). Higher delinquencies are evident in 2015 and early 2016 vintages.
Interest rates on Lending Club loans will increase by a weighted average of 26bps with increases concentrated in Grades F and G with only marginal changes to other grades.
Lending Club's statements regarding the credit performance of the loans is is supported by the loan book data. There has been a divergence in the credit performance of the higher and lower quality loans. Delinquency rates on the higher risk loans (E, F and G) from the 2015 vintage have risen more on a relative basis in comparison to the better quality loans (A, B, C and D) of the same vintage. This trend can also be seen in diverging performance of the gross charge off rates of the various loan grades.
P2P Global Investments invests in Lending Club loans and the majority of its capital is allocated to the better quality loans (graded A-C). The average coupon on the company's loans is 10.8%. As a barometer of the level of risk the company typically takes, the average interest rate on the 36 & 60 month loans from Lending Club's B-graded loans is 10.7%. The average coupon on VPC Specialty Lending's loans is 15.8% and it has experienced credit performance issues with a number of its US investments including Avant (higher risk US consumer lending) and Funding Circle's US loans (SME).|
Focus moves to balance sheet loans, 20% discount offers value
A number of factors have meant that the fund has not performed according to our, or management’s expectations over 1H 2016. Hopefully, the worst is behind it and there is the possibility that some of the impairments could recover should default rates improve. However, although the 20% discount and 7.5% yield are attractive, in our view, we retain our Neutral recommendation. We would like the dividend run rate to move closer to the targeted levels of 8pps (without support from capital) and to get more visibility on the likely performance.
1.5% NAV total return over 1H. The fund delivered an NAV total return of 1.5% over the six months to 30/06/16. The returns were below expectations as the fund encountered a number of issues. These included currency volatility around the referendum, forcing the fund to post an increasing amount of cash collateral for their currency swaps (£25m at 30/06/16). The manager says that whilst the majority of the loan portfolio performed in line with expectations, some holdings experienced higher than expected losses, holding back the NAV performance. Key issues were with underperforming loans from Funding Circle US as well as the markdown of the residual interest of three securitisations of Avant loans. We are hopeful that some of the NAV markdowns may unwind as the loans mature, especially if the rate of increase in defaults slows.
Capital used to support dividend. Over 1H, the fund has announced dividends of 3pps. The dividends were only 77% covered by revenues with the remainder supported from capital. The manager says they are hopeful, that as portfolio allocation to balance sheet loans increases, revenue levels will improve and be less volatile. The dividend run rate is below the 8pps dividend targeted when the fund launched due to the issues mentioned above. At the current run rate, the fund is on track to pay dividend of 6pps for 2016 at the bottom end of our forecasted range 6p to 7.5p. At a 6p outturn the shares would be on a c7.5% yield.
Focusing more on balance sheet loans. Balance sheet loans made up 39% of the portfolio at the end of July. These have had no impairments and have been paying coupons of 12% to 16%. The management team say they plan to redeploy the majority of the principal amortisation of the whole loan portfolio into balance sheet investments until they become a significant part of the portfolio. As this part of the portfolio grows, it should help reduce the volatility of the fund’s returns and income.
Positives & Negatives. Positives: (1) Attractive 20% discount; (2) Prospective estimated yield of 7.5%; (3) Returns should become less volatile as balance sheet loans allocation increases. Negatives: (1) 2016 dividends have been lower than expected; (2) Performance has been challenging relative to targeted returns despite the benign economic environment; (3) A significant portion of the dividend is being supported from capital.|
VPC Specialty Lending
Avant and Funding Circle US loans weigh on Q2 performance
VPC Specialty Lending's NAV rose 0.58% in June 2016 due to revenue returns (+0.27%) with the remainder from capital returns. NAV TR in Q2 2016 as a whole was 0.33% and the YTD return is 1.5%.
The NAV performance was impacted by a number of factors in the quarter including FX volatility following the referendum. This led to a significant level of cash drag on the portfolio as the company has held cash to cover collateral calls on the hedges.
The main reason for the underperformance in Q2 2016 was that certain positions experienced higher than expected losses. During May, the fund marked down holdings in certain tranches of ABS securitisations of Avant loans. The company's investments in Funding Circle US loans have continued to "substantially" underperform expectations. VSL stopped purchasing Funding Circle US loans in late 2015 so this portfolio will be amortised down. The majority of the whole loan portfolio performed in line with expectations and the balance sheet loans are performing well.
The NAV return performance in H1 2016 has been underwhelming and the company has experienced some issues (cash drag from FX volatility, short-term drag from new leverage facilities) that have also impacted its closest peer (P2P Global Investments). We note that both funds have recently taken steps to amend management agreements with P2PGI cutting the fee it charges on levered assets to 0.5% (from 1%) and VSL's manager will now use 20% of the monthly management fee to acquire shares. We also believe VSL should begin to buy shares back at the current level to demonstrate confidence in the underlying business.
One of the more interesting aspects of yesterday's quarterly newsletter were the comments on the performance of Avant loans and Funding Circle's US loans. The Avant loans are relatively high-risk loans and the increased default expectations mirrors recent data on Lending Club's higher risk loans which have experienced increased default rates in loans graded E through G.
The comments on Funding Circle's US loans may have a negative read-across for Funding Circle Income Fund (FCIF) which has 24% of its portfolio is US loans. FCIF's performance to date has been slightly ahead of expectations but the portfolio is still relatively unseasoned.
VSL currently trades on a 19% discount to NAV compared to an average discount of 7.3% for the sector.|
|Thanks for all updates dave much appreciated|
VPC Specialty Lending Investments' NAV was impacted by the write-down of the company's holdings in tranches of ABS securitisations. NAV per share at 31 May 2016 was 98.3p which equates to a loss of -0.62% for the month after adjusting for dividends.
The revenue return was 0.38% which was offset by a capital loss of -1.00% due to the ABS positions and losses related to currency fluctuations. The writedown of the ABS investments occurred as a result of higher than anticipated losses within the loan portfolio leading to a lower than projected yield of those assets. NAV performance was also impacted slightly as a result of cash drag due to margin requirements on the company's currency hedges.
Separately, the company also announced a change to the investment management agreement and Victory Park Capital Advisors will invest 20% of its monthly management fee in shares in the company going forward, provided that the shares are trading at a discount to NAV.
The company has not disclosed what ABS investments have been marked down or what platform the underlying loans relate to. The company has exposure to a number of securitisations including one which is supported by a $175m pool of consumer loans originated by Avant (consumer lending platform). The main concern is the increase in anticipated losses within the loan portfolio and yesterday's statement could have done more to address whether the manager regards this as part of a wider trend or if it relates to a specific sub-sector or platform.
VPC Specialty Lending and P2PGI had generated similar monthly returns in 2016 up until the end of April but there was a significant divergence in May (Figure 1). VPC Specialty Lending's YTD NAV total return is 0.9% vs. 2.1% for P2PGI. The funds have broadly similar exposure in terms of sector and geography although several of the underlying platforms are different. Monthly returns in 2016 have been muted as a result of by cash drag and non-utilisation fees as the funds gear up. Victory Park currently trades on a 17.6% discount to NAV compared to 20.4% for P2PGI.|
25 May 2016
VPC Specialty Lending Investments PLC
DIVIDEND DECLARATION AND UPDATE
During the quarter, the Company's revenue return was 1.31p. This is below the targeted annualised dividend due to a number of factors, including the use of leverage facilities and securitisations which incurred fees and costs, completed securitisations and cash drag which caused a deferral of residual income, and margin requirements which caused an FX margin impact. The foregoing are highlighted in more detail in the quarterly letter for Q1 2016 that was published on 6 May 2016.
The weighted average gross coupon of the invested portfolio is within expectations at approximately 14.73% as of 31 March 2016. The Company has selectively accessed the securitisation market and added leverage to certain assets in the portfolio. These transactions resulted in an increased level of cash pending reinvestment, which has impacted the Company's performance and its ability to meet the dividend target in the short term. For example, the Company was substantially fully invested on 29 January 2016, but was only 72% invested at 31 March 2016 after closing a securitisation transaction and a leverage facility in February and March, respectively. The Company believes that these steps will position the Company for stronger performance over the longer term and allow the Company to invest in new and existing platforms and further diversify the portfolio.
Taking the above factors into account, the Board of Directors of the Company is declaring an interim dividend of 1.50 pence per share for the three month period to 31 March 2016, including 0.19p contributed from the Company's other distributable reserves. The dividend will be paid on 30 June 2016 to shareholders on the register as at 3 June 2016. The ex-dividend date is 2 June 2016.
The Company has elected to designate all of the interim dividend for the period to 31 March 2016 as an interest distribution to its shareholders. In doing so, the Company is taking advantage of UK tax treatment by "streaming" income from interest-bearing investments into dividends that will be taxed in the hands of shareholders as interest income.
Investors who are eligible to receive the distribution without deduction of UK tax should complete the Declaration of Eligibility Form which can be found on the Company's website: hxxp://vpcspecialtylending.com/vpc-pdf/gross-interest-distributions-declaration-of-eligibility-form/ and return the forms to Capita Asset Services, at the address detailed in the form, promptly. The form must be received no later than 1 June 2016 to be eligible for this dividen|
|Stifel initiated today with a Buy rating but no price target|
VSL has released a March factsheet and an inaugural quarterly letter. These offer additional disclosures, and much needed colour on recent performance.
Additional disclosures: The disclosure of the yield on the portfolio, helpfully breaking it down between marketplace and balance sheet loans, aids comparison with peer P2P Global Investments (P2P). For example, VSL's marketplace loans yielded 16.2% (gross of any reserving - see the later paragraph) at the end of March, versus 10.4% for P2P. While VSL's balance sheet loans drag the yield on the overall portfolio down to 14.7%, they appear to offer a better risk/reward trade off than the 'first loss' marketplace loans. Elsewhere, we note there is little material difference between the two funds in terms of the average (marketplace) loan size, of $9,503 for VSL versus $7,993 for P2P, nor in the weighted average life of the loans, of 1.5 years for VSL versus 1.77 years for P2P.
Monthly NAV accruing at half the target return run rate: VSL's 41bps NAV performance reported for March mirrors that from February, and is broadly half the 80bps monthly run rate needed for the fund to achieve its 10% p.a. target. If we factor in the above yield on the overall portfolio, the composition of the portfolio (including gearing and its expected cost), ongoing charges/fees, and expected defaults, this highlights an anticipated monthly return for March of 78bps. This crude estimate points to the yield on the portfolio being high enough to deliver the target return run rate, even with gearing below 1x (0.73x at 31/03/16), but that other factors - now listed in the quarterly letter - are disappointingly reducing the monthly return.
Factors dragging on performance: This list includes fees and costs incurred from closing leverage facilities/securitisations, deferred residual income from completed securitisations, cash drag from margin posted against currency hedges, and the influx of capital following the closure of facilities/securitisations. The obvious question is at what point, and to what degree, do these factors subside. This is understandably difficult to answer. However, many of the above factors appear, at least in part, to be linked to the Avant securitisation, and the recent slowdown in the market for securitisations may signal less use of such activity in the near to medium term. In fact, the letter highlights VPC allocating more capital to balance sheet loans in response. The deployment of cash will also be critical in driving better performance. Following the closure of the credit facility to gear Upstart loans (its fourth non-recourse leverage facility), VSL held 28% of its portfolio in cash at 31/03/16.
Reserving: We also note VSL's recent results offer a glimpse at the reserving on its loan book. As at 31/12/15, VSL had reserved for c.£7m of impairments, equivalent to approximately 1.5% of the overall loan book, meaning further impairments of this amount could occur before any impact to the NAV. In reality, the reserves are attributed to marketplace loans only, based on the default expectations of the originating platforms for particular loan risk grades, and so this buffer against rising impairments is effectively higher.
Dividend and buyback decisions? We would highlight two key decisions for the board, in our view. First, Friday's NAV revealed 1.32p of accrued income, against a 2p quarterly dividend target. While the portfolio yield highlights enough underlying income to support the dividend, we feel the board will need to decide on whether to continue to bridge this gap with distributions from capital. Second, the decision on whether to use buybacks in support of the current 7.5% discount presents a conundrum. The amortising nature of marketplace loans offers a cash flow profile that could easily support share buybacks, helping to underpin the discount, while providing some helpful near-term return accretion. Against this, the shareholder structure would pose a (not insurmountable) obstacle, and despite the volatile discount, it remains relatively early in the fund's life to begin to shrink it.|
|I agree KPWF, with 0.33% and 0.41% in the first 2 months, looks like they're only on target to hit around 1.25% for the quarter, which is well short of the 2%+ they need to cover the 2p dividend target.
Might be already in the price now, but looks like the yield is more likely to be in the region of 5-6p pa, not 8p. Its a similar story with P2PG, though RDL does appear to be performing better (returning 0.48% & 0.75% in the same 2 months).
Think there are probably safer places to obtain a likely c5-6% yield so I've decided to sell out here.|
|The latest NAV (Cum Income) returns as shown on the February Monthly Report look disappointing to me and not enough to support an 8p annual dividend which is the stated target. It seems to me therefore that NAV (Ex Income) is likely to reduce as a result.
Does anybody agree with me or am I misinterpreting the figures?|
|Why the downwards drift in the SP?|
VSL Dividend Declaration
VPC Specialty Lending Investments PLC (VSL LN) announced an interim dividend of 1.89pps for the three months to 30th September this morning. The dividend will be paid on 11th December to shareholders on the register on 20th November. The XD date is 19th November 2015.
This brings the total dividends declared since the IPO in March to 2.79pps.
The interim dividend will be designated as an interest distribution to take advantage of UK tax treatment by "streaming" income from interest-bearing investments into dividends that will be taxed in the hands of shareholders as interest income. Investors who are eligible to receive the distribution without deduction of UK tax should complete the Declaration of Eligibility Form which can be found on the Company’s website: hxxp://vpcspecialtylending.com/vpc-pdf/gross-interest-distributions-declaration-of-eligibility-form/ and return the forms to Capita Asset Services, at the address detailed in the form, promptly. The form must be received no later than 18 November 2015 to be eligible for this dividend.
VSL ords became substantially fully invested on 22nd July. Since that date, the Company states that the “yield on the portfolio has been in line with expectations”.
The C shares (VSLC LN) are now c.44% invested.|
|Just noticed that despite my VPC being held in an ISA Account (with iWeb) they appear to have taken tax at 20%. Anyone else in the same boat, and is this correct? I did see the recent RNS (copied below), but even after that wasn't sure of the implications for people holding within an ISA. Are we entitled to the gross payment, and if so is the onus on us to claim it back or our broker? TIA
RNS Number : 9068V
VPC Specialty Lending Invest. PLC
13 August 2015
13 August 2015
VPC Specialty Lending Investments PLC
The Board of Directors (the "Board") of VPC Specialty Lending Investments PLC (the "Company") (ticker: VSL) is pleased to announce that the Company has declared its first interim dividend of 0.9 pence per share for the period to 30 June 2015.
The dividend will be paid on 3 September 2015 to shareholders on the register as of 21 August 2015. The ex-dividend date is 20 August 2015.
The Company has elected to designate all of the interim dividend for the period to 30 June 2015 as an interest distribution to its shareholders. In doing so the Company is taking advantage of UK tax treatment by "streaming" income from interest-bearing investments into dividends that will be taxed in the hands of shareholders as interest income.
Investors who are eligible to receive the distribution without deduction of UK tax should complete the Declaration of Eligibility Form which can be found on the Company's website: hxxp://vpcspecialtylending.com/vpc-pdf/gross-interest-distributions-declaration-of-eligibility-form/ and return the forms to Capita Asset Services, at the address detailed in the form, promptly.|
VPC Specialty Lending Investments (NR)
87% of capital deployed
VPC issued a half year report for the period from 12 January 2015 to 30 June 2015 and reported deployment of 87% of the initial capital. As at 30 June 2015, VPC has invested with 16 Platforms (directly and indirectly through investments in other funds) originating consumer and small business loans across the U.S., U.K. and Europe.
Consumer exposure accounted for 74% of the invested portfolio, while small business exposure accounted for 26%. Investments in U.S. Platforms accounted for 85% of the invested portfolio, with the remainder being predominately UK-based loans. The 30 June 2015 NAV per share was 99.62 pence, representing a 1.66% return for the period since admission. VPC is trading at a 1.4% premium against June NAV.|
|Yes I did and P2P's 'C'share issue at £400m closed early yesterday due to excess demand.|
|Hi Dave. Off topic, I see P2P are looking to raise up to £400m with another 'C' share issue. Are you going for it? I'm wary they might be reaching saturation point, having raised 3 times in a little over 12 months..?|