Author Topic: Newbie here: are my notes protected?  (Read 4731 times)

jasondhsd

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Newbie here: are my notes protected?
« on: May 17, 2016, 02:40:14 PM »
Hi I'm new here, I actually transferred money into my newly created LC account basically the night before all the crap went down. It's finally in the LC account today.  I know that's insured but I'm very confused if I start buying notes if I'm protected if LC fails (I know they aren't if the borrower defaults)?    I know with a brokerage if they fail I still own all the stock and mutual funds in my name.   But unless I'm misunderstanding if LC goes down I could potentially lose all my notes & not get back even my principle regardless of the borrower's status on payment...which they would still have to pay? Who would they be paying back if not the investors that lended out the money?   If this is the case then in reality there is zero diversification since only LC has to default or go under. That makes the acceptable risk of investing in notes turn into a very high risk.  Am I wrong on this? I hope I am.

Fred93

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Re: Newbie here: are my notes protected?
« Reply #1 on: May 17, 2016, 03:47:31 PM »
LC has a large pile of cash on the balance sheet.  Over $800 Million!  And they have not borrowed.  This means that it is extremely unlikely that they would go bankrupt.  Bankruptcy occurs generally when a company can't make a loan payment, but in this case there are no loans.  One would have to imagine a future where they have borrowed big money, used it up, borrowed more, and finally could not make the payments.

Your notes are obligations of LC, so if LC should someday enter bankruptcy, it is theoretically possible that your notes could be affected.

But it is important to understand at this point where your notes sit in the capital structure.  This is the fundamental thing that happens in bankruptcy.  There are no loans senior to your notes.  You're at the top of the list.  There are some things that would likely be given priority above you:  Taxes, salaries, perhaps a few other things.  Right now all those things are paid out of the cash the company generates of course.  We're imagining a dark future where that no longer occurs.

Finally, when guessing how badly an asset will be impared, you have to look at what assets are on the balance sheet.  For every $1 of note, there is $1 of loan on the other side of the balance sheet!  So not only do we get most of whatever there is, the whatever is big enough to cover us.

The bankruptcy judge (should there ever be a bankruptcy) makes the final decisions, and he considers the effect on all constituencies.  We may think of ourselves as "little guys" but in aggregate we represent several BILLION of assets and liabilities, so he will consider our situation.

While we are not legally separated from LC, we are in a very good and clear legal position.

Ribald

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Re: Newbie here: are my notes protected?
« Reply #2 on: May 17, 2016, 04:30:20 PM »
The 10Q said they might use cash or borrow money to buy their own loans if investor interest doesn't perk up.  Seems a bit fragile and might weaken the note holder's position in the capital structure should bankruptcy occur.  But I guess if the loans are solid all is still well.

nonattender

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Re: Newbie here: are my notes protected?
« Reply #3 on: May 17, 2016, 04:54:44 PM »
Hi I'm new here, I actually transferred money into my newly created LC account basically the night before all the crap went down. It's finally in the LC account today.  I know that's insured

Hit "invest" and last night will be the last night you sleep well;  paragraphs of legalese to conceal risk aside, that is the Truth.
A little nonsense now and then is relished by the wisest men.

fliphusker

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Re: Newbie here: are my notes protected?
« Reply #4 on: May 17, 2016, 05:51:07 PM »
Hi I'm new here, I actually transferred money into my newly created LC account basically the night before all the crap went down. It's finally in the LC account today.  I know that's insured

Hit "invest" and last night will be the last night you sleep well;  paragraphs of legalese to conceal risk aside, that is the Truth.
I sleep like a baby.  I know full well that any investment I make is not 100% guaranteed.  Read through some of the threads here and you will get a general sense of what most feel here.  Only a couple here think the sky is falling.  They might be right.  Quite a number here feel LC will come out fine and better off.  I am not going to give you my personal advice, as it most likely does not fit your own criteria for risk.  Best of luck, no matter what you decide.  Good forum here with lots of sound advice. 

Ribald

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Re: Newbie here: are my notes protected?
« Reply #5 on: May 17, 2016, 06:12:57 PM »
Hi I'm new here, I actually transferred money into my newly created LC account basically the night before all the crap went down. It's finally in the LC account today.  I know that's insured but I'm very confused if I start buying notes if I'm protected if LC fails (I know they aren't if the borrower defaults)?    I know with a brokerage if they fail I still own all the stock and mutual funds in my name.   But unless I'm misunderstanding if LC goes down I could potentially lose all my notes & not get back even my principle regardless of the borrower's status on payment...which they would still have to pay? Who would they be paying back if not the investors that lended out the money?   If this is the case then in reality there is zero diversification since only LC has to default or go under. That makes the acceptable risk of investing in notes turn into a very high risk.  Am I wrong on this? I hope I am.

I think you're right about the lack of diversification since the whole platform can fail.  On the bright side if you can live with the platform risk it's a great time to pick up some discounted notes on Folio.  Personally, I wouldn't go above 5% of liquid net worth in LC notes even though the prevailing theory here is that you will get your money back in the unlikely event that LC goes bankrupt.  Another advantage to Folio is you can pick up notes with only a year or so remaining if you are convinced that LC has at least another year left to live.

sommers

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Re: Newbie here: are my notes protected?
« Reply #6 on: May 18, 2016, 03:26:29 PM »
Hi I'm new here, I actually transferred money into my newly created LC account basically the night before all the crap went down. It's finally in the LC account today.  I know that's insured but I'm very confused if I start buying notes if I'm protected if LC fails (I know they aren't if the borrower defaults)?    I know with a brokerage if they fail I still own all the stock and mutual funds in my name.   But unless I'm misunderstanding if LC goes down I could potentially lose all my notes & not get back even my principle regardless of the borrower's status on payment...which they would still have to pay? Who would they be paying back if not the investors that lended out the money?   If this is the case then in reality there is zero diversification since only LC has to default or go under. That makes the acceptable risk of investing in notes turn into a very high risk.  Am I wrong on this? I hope I am.

Had this been happening three years ago and I hadn't get bought any notes--I'd thank God and recall my money and look elsewhere---maybe Prosper but if I could I'd avoid this business altogether.  It's not worth it (to me anyway)