P2p Global Investments Share Discussion Threads

[aroon666] 29/2/2016 20:15

I'm not sure what you say is correct but perhaps you know more.

According to the prospectus, loans/assets are valued on the balance sheet at purchase price (less fees). And each month they are amortised using something akin to an irr (Effective Interest Rate). Nothing gets amortised down to its book value.

"At acquisition, loans are valued at the initial advance amount inclusive of any fees paid to the Platforms or, at the purchase consideration paid, if acquired from a third party. Thereafter, all loans are valued at this amount less cumulative amortisation calculated using the Effective Interest Rate (‘EIR’) method. The EIR method spreads the expected net income from a loan over its expected life. The EIR is that rate of interest which, at inception, exactly discounts the future cash payments and receipts from the loan to the initial carrying amount."

[argoal] 29/2/2016 14:59

In the example that I gave it is the difference between the book value of the debt on the balance sheet and the price paid for the debt that is amortized.

There are probably other scenarios that would unwind the same way though.

[aroon666] 29/2/2016 13:38

Hi argoal. thanks so the debt that is amortising in this case are actual assets of p2p not liabilities. I see.

Ratesetters default rates are a bit concerning:

hxxps://www.ratesetter.com/aboutus/statistics

Lifetime default rate of loans made in 2013 1.54% expected, and so far 1.60% have defaulted.
Lifetime default rate of loans made in 2014 2.30% expected, and so far 2.34% have defaulted.
Im assuming the amounts defaulted will increase as the remaining 2013 and 2014 loans mature.

[anley] 29/2/2016 11:11

Still a long way to go before private investors can get in and strip the income tax free.

Thanks for posting this DAVEBOWLER........helpful.

[davebowler] 29/2/2016 10:21

This should improve our visibility-

[argoal] 29/2/2016 07:58

No aroon it is a cost. This is how it works.

Say they bought $1M worth of debt but paid $1.05M for it. The 1M would go on the balance sheet as an asset and the 50k as an intangible. When the 50k gets amortised (I.e. reduced in value) as the loans it relates to are paid back, then you take a hit to the balance sheet that shows up as an amortisation cost in the p&l.

So the assets decrease but there is no corresponding decrease to liabilities.

[aroon666] 28/2/2016 20:46

How is debt amortisation a cost? Don't your assets and liabilities decrease by equal amounts?

[rl34870] 28/2/2016 19:16

Current Ratesetter default rate is 1.18%. Whilst the current share price is depressed because of an institutional seller overhang, I think P2P are using this as an opportunity to kitchen sink some costs ie debt amortisation. This will probably prove to be an excellent buying opportunity- the dynamics of the fund have not materially changed and the entry point is 30% cheaper than a year ago.Fill your boots!

[jimbo55] 27/2/2016 00:37

As somebody who has been lending on Funding Circle almost since inception in 2010, I think that defaults will be high during a recession. Gut feel is somewhere between 10 - 20%. Time will tell...

[aroon666] 26/2/2016 16:13

I'm not sure you can come to that conclusion.

These things didn't really exist in 2008 so saying that it will stand up to the test remains to be seen. I cant imagine default rates being as low as their targeted 3% in a 2008 style crisis personally, (given they are currently about 3%.) But no one knows for sure.

[aroon666] 25/2/2016 17:50

If the industry is in general trading at a 5% discount then i'm thinking the shares should recover to 930 to 950p. Especially if the NAV remains consistent around 1000p the next month or two.

Unless there is some adverse news that only institutional investors are aware of specifically in regard to p2p global.

[anley] 25/2/2016 14:42

I am now wondering if P2P will tade like some investment trusts.........at a discount to NAV of say 10%.
If they do then it will be on the basis that "this is a new investing concept and we want to see how it pans out".
On top of this if we have or do have a seller - manager getting out - see a recent post then that to will have a drag on the share price and looking at all the dealings they have been here there and everwhere recently.

That is how I see matters........

[aroon666] 25/2/2016 14:01

Specuvestor I dont think anyone is whingeing here. Defaults are part and parcel agreed. (Though I dont agree with your comments that if p2p investors are losing money then equities will be negative as you have no history to back up your claims).

I am interested in purchasing more of p2p. And we are debating why p2p global is trading 10% below its peers. Anything interesting to say, or you want to get it out and swing it around a bit more?

[specuvestor] 25/2/2016 08:42

As many commentators have been saying, P2P is NOT the equivalent of no risk savings accounts and its not covered by the Financial Compensation Scheme. There are risks. That's why Lenders on A & A+ loans can receive 6% to 8% and not the derisory 1% in the bank or building society. With higher risk SME loans such as D & E loans the going rate is 15% to 20%. You dont get those type of interst rates without defaults.
The long term return on equities is 5%. On gilts & corporate bonds it is less. So, I am happy with the higher returns available on P2P and I expect to lose a percentage of the money I lend to loans that default. In fact I expect there to be losses from time to time.
If defaults increase to the extent that Lenders to P2P borrowers are making overall losses, then you can bet your bottom dollar that the state of the economy would be so bad that returns on most asset classes such as equities and property will also be negative.
So until there is evidence of high unemployment rates and a spike in default rates then I am not at all worried. P2P should be a part of a diversified portfolio so anybody that is 100% invested in P2P should look more closely at their approach.
In the meantime, investors that cannot stomach a capital loss should not be dabbling in this asset class and stick to deposit accounts or premium bonds rather than winge on about default rates when defaults rates are all part of the nature of the beast.

[aroon666] 25/2/2016 00:26

Its a shame there is no market commentary on this months newsletter. You would think there might have been some mention on why the shares have collapsed so dramatically relative to its peers.

Going through the newsletter and prospectus:

- This is not lending only to prime borrowers. The newsletter states that funds are spread evenly between A to D rated borrowers and has a massive 11% average coupon which indicates definitely an high proportion of high risk loans. Also it is not clear how much of this is asset backed. Given the high exposure to consumer loans and small amount to SME's and real estate, it seems most (90%) is unsecured.

- If average coupon is 11% and upto 100% leverage will be employed, its not clear to me why the targeted returns 6-8% are so low.

- Weighted average "term" is 4 years compared to weighted average "life" of 2 years Is this because these are repayment loans where you pay the interest and some of the principal each month so average life is shorter?

- Discount management. The Company may seek to address any significant discount to NAV at which its Ordinary Shares may be trading by purchasing its own Ordinary Shares in the market on an ad hoc basis. Not sure why this hasn't taken place this month. The C-shares are cash rich as well so would be straight forward.

Management fee is 1% pa and 15% performance fee with no layering so not charged twice if funds are invested into a sub fund.

- In terms of what the zero hedge article states, that borrowers could borrow funds to pay off credit cards, and then max out on the credit cards again, the prospectus states this is entirely possible. P2P loans do go on a persons credit file like bank loans so there is no difference here in terms of being rated and accessing credit at a bank so there shouldn't be much difference in investing in a portfolio of bank loans or p2p loans. However the prospectus does state that it is entirely possible that borrowers are more likely to default on p2p loans than credit cards or bank loans as they may feel the consequences are less severe.

- Impairment - Loans advanced are further assessed for impairment on a collective basis even if they are assessed not to be impaired individually. Observable changes in economic conditions or changes in forecasted default or delinquency in interest or principal payments based on the Investment Manager’s past experience are applied. So effectively if defaults are expected to rise, this would be reflected in the NAV immediately which is a good thing.

Default rates - Newsletter states target of 3%. Prospectus says "Stress tests on the portfolio are based on scaling of the expected portfolio loss rates. The Investment Manager uses long-term historical time-series, such as the US Federal Reserve’s credit card charge-off statistics, to calibrate its stress severities." Which suggests that they think 3% is a good long term run rate of defaults. This sounds low. If default rates went up to say 10% per annum. this would knock off 7% year extra in the NAV assuming no leverage, or 14% a year 100% leveraged which is massive. Interestingly Zopa has current expected default rates as about 3% (hxxp://www.zopa.com/lending/risk-data). This is in a very benign environment of full employment and low rates so why a long term default rate of 3% is used I'm not sure. Also a bit concerning is that the reserve fund at Zopa is only 1.2x the expected default rate with expected default rates rising each year. No room for margin, and if default rates have been much lower than expected last few years, why hasn't this reserve fund built up even more. Are these default rates quoted as per annum rates - ie of all funds lent out at any point in time, 3% a year are expected to default? Not sure what "lifetime" default rate means.

[jimbo55] 24/2/2016 21:43

Hi Specuvestor,

The LTV's on many FC London property loans are now typically between 70 - 80%, which is far more of a worry as it doesn't leave much room for error should London property prices crash.

Director personal guarantees are not worth the paper they're written on. In many cases, if the company folds then bankruptcy tends to follow. Asset security on FC business loans is the exception rather than the rule. Typically, the non-property loans are non-secured and backed by a director's guarantee. This prevents phoenixing but gives you no guarantee you'll get your money back on a default.

Can't speak for Ratesetter as not using the site. I do wonder if the provision fund does give lenders on the site a false sense of security though. None of these sites have yet been through a recession.

Cheers.

[rl34870] 24/2/2016 16:08

Have just downloaded Ratesetter,s entire loan book by accident! All the info is out there if we need it. Surely Ratesetter defaults are a better indicator re P2P than Funding Circle.

[specuvestor] 24/2/2016 15:21

Jimbo55, There are a lot of property loans on Funding circle with a First Charge on the property on 50%-70% LTV. I lend to these myself. Some of them are for 6-12 months at 8% to 9%. These are rated A+ and A. The B & C the loanc usually comes either with Asset security such as equipment or a personal guarantee from Directors. Often both.

Yes there will be defaults but at present the A+ defaults are 0.6%, A 1.5%, B 2.3%, C 3.3%, D 5% and E 8%.

Overall a diversified spread on Funding Circle after defaults & fees yields 6.7%

[jimbo55] 24/2/2016 13:49

I lend on Funding Circle. These are not prime borrowers; typically because the banks are only too happy to lend to those; particularly if there is security to be pledged as loan collateral. Funding Circle cater for small business lending, and these are highly vulnerable to recessions.

[rl34870] 24/2/2016 12:29

P2P say target default rate is 2-4%. If actual default rate was 20% and thus 40% with 100% gearing, then in six years time capital growth would still be nearly 4% per annum if share price gradually returned to NAV(assuming no dividends paid and no performance fee) from its current level.
As they are lending mainly to prime borrowers, can the share price go any lower?

[davebowler] 24/2/2016 10:01

Liberum;
P2P Global Investments (BUY)
C share conversion to take place in March

Event
P2PGI yesterday announced that over 90% of the net proceeds raised in the C share issue in July 2015 will shortly be invested. Conversion of the C shares into ordinary shares will take place during March following the announcement of the February NAV for both share classes. Once the share classes have merged, P2PGI expects to resume a regular quarterly dividend with the dividend for Q1 2016 to be declared in April.

Separately, P2PGI also announced the NAV for January with the portfolio delivered NAV growth of 0.41% and 0.48% respectively for the ordinary shares and C shares during the month.

Liberum view
The merging of the C shares is in line with the 6-9 month target set at the time of issue. The majority of the portfolio metrics have remained broadly unchanged in the month with the weighted average coupon on the ordinary shares stable at 10.0%. The coupon on the C share portfolio was 11.3% (vs. 11.5% at December 2015) and we believe this is mainly due to a change in the portfolio mix (slightly higher allocation to A grade and lower weighting in D grade). The gearing on the ordinary shares rose to 78% by the end of January (69% at December 2015). The ordinary and C shares are currently trading on discounts to NAV of 17.1% and 16.5% respectively.

[rl34870] 24/2/2016 09:37

January factsheet out today, NAV 1003.7p so trading on a discount of around 15%.

[anley] 23/2/2016 15:47

A pop up and then marked down in the afternoon..........something is going on!