NB: Content updated 1st March 2017
Saving Stream sent an email to investors informing those who had deposited capital in loan PBL020, a defaulted loan from 2016, that all capital had been returned, as well as accrued interest.
Below is a quote from Saving Stream, and further below, a timeline of the default published 3rd November 2016.
We would like to announce that yesterday we fully repaid one of our long term defaulted loans (PBL020) for £1.7m plus c£147k of interest that had accrued during the default period.
In May of this year peer-to-peer lending platorm, Saving Stream (trading name of Lendy Ltd), suffered its second default since launching in 2013. It’s been a hot topic with retail investors ever since as it is still unknown if investors’ capital will be recovered.
The first default, on a loan under £200,000, was recovered within three months and saw all capital and interest returned to investors. An impressive resolve from the property lending platform and a strong signal to naysayers that peer-to-peer lending recovery processes do work.
The assets securing the second defaulted loan (ref: PBL020) – a £1.7million loan – have not been sold and investors are still exposed to this default. To provide clarity for investors in the loan, we delineate the default including events leading up to the default which may affect how investors’ capital and interest are repaid.
PBL020 Loan Details
For more details on the loan particulars, visit: ‘Saving Stream experiences second default‘. Otherwise continue on for loan overview.
The bridging loan was approved in December 2014 so that an entrepreneur could purchase property and land in Hampshire and develop the existing garden centre into a tourist centre and local hub.
- Land with full planning for redevelopment.
- Agricultural land.
- Residential property.
- Bricks and mortar assets on commercial buildings.
Key loan stats
Security: £2.43million (asset includes land, property and business)
Term: 6 monthsLoan-To-Value (LTV): 70%
Retail investors: 1,103
The asset securing the loan was originally valued at £2.43m, providing investors with a 70% LTV comfort. Since the loan was sanctioned, the asset has been re-valued at £1.2m – £1.5m.
Timeline of PBL020 Default Events
Here is a chronology of important events from loan issuance to point of default, including the change of Saving Stream Terms & Conditions, which bears significance to investors in the loan and will be discussed further below.
PBL020 loan launched on Saving Stream.
PBL020 loan drawn down.
Borrower purchases land and runs operations at the site while awaiting planning permission for their development plans.
‘General Update’ sent to investors informing of change to Terms & Conditions.
Planning for log cabins, as part of PBL020 site redevelopment, not approved by planning committee.
May 25th 2016:
Opus LLP appointed as administrator to recover the loan.
May 28th 2016:
Loan goes into default.
Garden Centre (site) operating with the administrator and making profit.
Planning department engaged with to identify uses for site to make it more appealing to buyers.
Offer received for nearly full amount of outstanding Saving Stream loan. Offer accepted, but reliant on the purchaser receiving a bank mortgage.
Sale progressing with lawyers.
Buyer who placed offer in August pulls out.
Offers being received for between £1.2million and £1.5million. A tenant is looking to take over the site and will pay rent over the Christmas period with a view to purchasing in the new year. All options are still on the table.
Investors’ capital is exposed to loss until either the site is sold for at least the loan size of £1.7m or the provision fund steps in to cover investor’ capital. It is unclear what the true value of the site is and when it will be sold.
Saving Stream Ts&Cs Change (Sept 2015)
As highlighted in the timeline of events, Saving Stream changing its Ts&Cs affects investors in the PBL020 loan.
1. Saving Stream becomes true “peer to peer” for compliance purposes
Under new Terms (Sep 2015), investors lend to borrowers directly, bearing full credit risk. Under old Terms, investors lent to Lendy Ltd, who then lent to borrowers, meaning Lendy Ltd would be exposed to the borrower defaulting. Loan PBL020 was issued under the old T&Cs, where Lendy Ltd would bear the credit risk and Lendy Ltd would be responsible for repaying investors.
Now you are lending to the Borrower directly (via SSSH Ltd), Lendy Ltd no longer have any legal responsibility for covering any shortfalls. Lendy Ltd will return to the Lenders whatever is returned following disposal of the asset. Any shortfall should technically be absorbed by the Lender as a normal part of business. – Saving Stream Ts&Cs update Sep 2015
It is not explicitly clear if the old or new T&C’s govern loan PBL020.
2. Lendy Ltd as debtor
According to the Ts&Cs it would appear that Saving Stream is not liable for loans issued under the old T&C’s as they will be transferred onto and under the jurisdiction of the new Ts&Cs:
Most existing loans will be transferred to the new structure after a period of consultation and consideration. We may not transfer those loans ending soon as it may not be worthwhile/commercial to do so. – Saving Stream Ts&Cs update Sep 2015
This implies, that should you have invested in PBL020 between December 2014 (loan launch) and September 2015 (Ts&Cs change), then you bear the full credit risk despite the loan initially being issued under old Ts&Cs where Lendy Ltd was debtor.
3. Interest paid on defaults
Under old Terms, investors were told: ‘If a loan went into Default, Lendy Ltd continued to pay interest at the normal rate of 1% per month.’
However, new Terms (Sep 2015) dictate that lenders will ‘continue to earn interest, but it will accrue, rather than be paid on a monthly basis’ and upon loan settlement ‘interest and capital will be paid at that point to the extent that it is fully recovered (then the Provision Fund should step in to cover shortfalls subject to our discretion).’ – Saving Stream Ts&Cs update Sep 2015.
How this affects PBL020
Saving Stream issued the following statement, just prior to the PBL020 asset sale fell through:
Monthly interest payments are not guaranteed. We are taking all appropriate steps to recover 100% of the capital from these loans.- Update Summer 2016
4. Provision Fund coverage
According to new Terms (Sep 2015):
The provision fund will be maintained with “at least” 2% of the running loan book at any time in a separate bank account from Lendy Ltd’s operational account.
The provision fund exists as a “top-up” to investors should the asset securing the loan, once sold, fail to repay creditors in full.
This is important, as it suggests that should the asset securing the loan sell for less than the initial valuation, and less than the 70% LTV for whatever reason (such as an inaccurate valuation or market downturn), then the provision fund ‘should step in to cover shortfalls’.
The provision fund total, as published on the Saving Stream website, is 2% of the live loan-book total and pays out at the discretion of directors.
Live loan book: £143,958,382Provision fund: £2,879,168= 2%
How this affects PBL020
If the underlying asset sold for the c£1.5m price in the Summer, then the provision fund could step in to replenish the repayment, in the sum of c£200k at the directors’ discretion.
The asset is now up for offers in the region £1.2m – £1.5m according to Saving Stream updates, so it is possible that the provision fund could repay the recovered repayment balance.
Underlying Asset Value PBL020
The major risk for investors now is that the asset is drastically overvalued or the asset can’t be sold and the provision fund does not cover losses.
How this affects PBL020
Saving Stream received three independent valuations on the loan particulars, from Henry Adams LLP, Plimsoll Ltd and Alexander Mackie Associates Ltd. The valuation documents can be found on the Saving Stream website, under Default Loans tab.
The initial valuation of the assets including property, land and business, amounted to £2.43m.
If the real valuation was always £1.5m then the LTV would be 113%, not 70%.
Saving Stream Legal Position
For reference, we have noted Saving Stream’s legal position as stated in the update below:
The loan from lender to Lendy Ltd remains in place until the borrower repays the loan and your funds cannot be removed during that period (unless sold via the secondary market). You are unable to demand that Lendy repays you (or, sue Lendy for this repayment) as the repayment does not fall due until Lendy is repaid by the borrower (Clauses 4.5 & 4.6 of the ‘old’ terms that were agreed).
As the borrower has not repaid the loan, Lendy is, on your behalf and at Lendyâ€™s option, enforcing the default procedures set out in the loan agreement with the borrower (clause 5.2). Once the assets have been realised Lendy will repay your investment. In the event that there is a shortfall then Lendy will pay you a proportion of the recovery proportionate to the amount invested by you in the loan (clause 5.3.1). There is no guarantee as to the time it will take for the proceeds to be realised for reimbursement to you (clause 5.4). The administrators will make the decisions on whether the business can be sold as a going concern or whether it is better for the creditors of the borrower as a whole to liquidate the assets. We apologise for the time it is taking for repayment of the debt but you will appreciate that this is outside of our control; we will of course keep you updated regularly on the website with the progress of the administration and any anticipated recovery.
A £1.7m loan has defaulted on the Saving Stream platform, which over 1,100 Saving Stream investors are currently exposed to. The asset has failed to sell for £1.5m, £943k below its original valuation. It is still unclear how much the asset will be sold for or when, even though final offers are being received by the selling agent today – 3rd Nov 2016. Although Saving Stream originally stated that investors interest would accrue on defaulted loans and be repaid upon asset sale, there is now no guarantee that interest will be paid. If capital loss exceeds the asset sale price, Saving Stream has a provision fund totalling c£2.9m in place which should ‘top up’ any losses of capital. Unfortunately, investors in the loan are left waiting to understand how and when their capital (and accrued interest…) will be returned to them.