Lend Academy Network Forum

Lending Club Discussion => Investors - LC => Topic started by: hoggy1 on October 07, 2014, 01:50:43 PM

Title: Lending Club bankruptcy remote vehicle
Post by: hoggy1 on October 07, 2014, 01:50:43 PM
Pleas indicate your level of concern with the lack of a bankruptcy remote vehicle for LC retail investors.

For those of you who have not followed other threads on this subject or don't know what a BRV is (which included me until a few weeks ago) a BRV protects investors in the event of a LC bankruptcy wherein the notes are held by a third party trustee in escrow for lenders (or similar functional arrangement). At present, the borrowers owe LC the money, not the investors, therefore in a LC failure preferred investors and secured debt holders would be entitled to these cash flows before lenders would be.
Title: Re: Lending Club bankruptcy remote vehicle
Post by: yojoakak on October 07, 2014, 05:07:28 PM
Who's got time to worry about that when ISIS is going to come over here and kill us all!

http://www.upi.com/Top_News/US/2014/09/16/Lindsey-Graham-fears-ISIS-will-come-kill-us-all-in-a-not-at-all-hysterical-way/5011410890658/
Title: Re: Lending Club bankruptcy remote vehicle
Post by: brother7 on October 07, 2014, 05:11:18 PM
I wonder... is LC's lack of a BRV reason enough to sway investors away from LC towards Prosper?
I have accounts at both but am now wondering if I should halt reinvestment at LC and funnel the funds toward Prosper. Is anyone doing this? And if so, what are your underlying reasons?
Title: Re: Lending Club bankruptcy remote vehicle
Post by: Rob L on October 07, 2014, 06:55:41 PM
I opened a Prosper account a few months ago; about half the size of my LC account now.
If a BRV were in place I would probably have invested the entire amount in LC. The other way to look at it is that LC would have 50% more money.
I don't know what others call it, but I use the term "risk of ruin". For my LC account it is quite conceivable might lose it all.
Prosper somewhat less,but still not zero.
Title: Re: Lending Club bankruptcy remote vehicle
Post by: rawraw on October 07, 2014, 07:06:40 PM
I call it platform risk
Title: Re: Lending Club bankruptcy remote vehicle
Post by: Fred on October 08, 2014, 01:09:13 AM
Not sure if anyone is aware of Portfolio Financial Servicing Company (“PFSC”) per http://kb.lendingclub.com/investor/articles/Investor/What-happens-if-Lending-Club-goes-out-of-business

Quote
We have taken steps to ensure continuity to protect investors and borrowers if Lending Club went out of business.  For example, we have executed a backup and successor servicing agreement with Portfolio Financial Servicing Company (“PFSC”).  Under this agreement, PFSC stands ready to service the member loans. Following five business days’ prior written notice from us or from the indenture trustee for the Notes, PFSC will begin servicing the member loans. If the underlying loans are determined to be part of the Lending Club’s bankruptcy estate, PFSC may not be able to make payments on the Notes. If our agreement with PFSC were to be terminated, we would seek to replace PFSC with another backup servicer.
Title: Re: Lending Club bankruptcy remote vehicle
Post by: hoggy1 on October 08, 2014, 07:27:45 AM
Well we have 27 votes which break down roughly as I expected but there have been 160 views indicating 133 abstentions. I think we have to count those as very low concern or IQ.
Title: Re: Lending Club bankruptcy remote vehicle
Post by: Rob L on October 08, 2014, 08:58:07 AM
I call it platform risk

Like that term too (even better). Captures the essence of the specific risk.
My "risk of ruin" term has a broader meaning; for example portfolios highly concentrated in a few notes.
We are only talking about platform risk in this thread.
Title: Re: Lending Club bankruptcy remote vehicle
Post by: DanB on October 08, 2014, 09:13:22 AM
Not sure if anyone is aware of Portfolio Financial Servicing Company (“PFSC”) per http://kb.lendingclub.com/investor/articles/Investor/What-happens-if-Lending-Club-goes-out-of-business

Quote
We have taken steps to ensure continuity to protect investors and borrowers if Lending Club went out of business.  For example, we have executed a backup and successor servicing agreement with Portfolio Financial Servicing Company (“PFSC”).  Under this agreement, PFSC stands ready to service the member loans. Following five business days’ prior written notice from us or from the indenture trustee for the Notes, PFSC will begin servicing the member loans. If the underlying loans are determined to be part of the Lending Club’s bankruptcy estate, PFSC may not be able to make payments on the Notes. If our agreement with PFSC were to be terminated, we would seek to replace PFSC with another backup servicer.

I've been well aware of this for years. Not sure if you are aware that no one contends that this servicing agreement protects us like a BRV would or increases the chances of us lenders getting our money back by addressing the fundamental issue.
This servicing  agreement is about decreasing the chances (not eliminating) the likelihood of a substantial walkaway on the part of borrowers simply because they feel they don't need to pay anymore, without negative consequences.  Before anyone rubbishes that possibility, I'd ask that they look at the behavior of Loanio borrowers when it went under.
Title: Re: Lending Club bankruptcy remote vehicle
Post by: SeanG on October 08, 2014, 09:35:23 AM
First time posting on this blog. Great topic. I voted and am in the second rank; seriously considering not investing any more funds with LC until a satisfactory solution is presented by LC.
Title: Re: Lending Club bankruptcy remote vehicle
Post by: Victor on October 08, 2014, 10:34:27 AM
The servicing agreement alone fails to protect us lenders since there is slim (no) chance that the loans (notes) will be considered separate from LC's bankruptcy estate in the event of a Chapter 7 or 11.  The loan service agreement may assure that borrower payments will be processed, but the money will be channeled by the bankruptcy court to other creditors and equity holders before it ever gets to us lenders.  Ergo, the institutional investors insist on a BRV.

I can fathom no reason why "small" or retail investors shouldn't be equally protected.  All of the retail money on this platform certainly should aggregate to the size of an institution.  What are we, 10% of the platform,?  More?  Less?
Title: Re: Lending Club bankruptcy remote vehicle
Post by: Fred on October 08, 2014, 10:38:03 AM
This servicing  agreement is about decreasing the chances (not eliminating) the likelihood of a substantial walkaway on the part of borrowers simply because they feel they don't need to pay anymore, without negative consequences.

BRV does not eliminate the risk either; borrowers might still walk away.
Title: Re: Lending Club bankruptcy remote vehicle
Post by: Fred on October 08, 2014, 10:57:57 AM
The servicing agreement alone fails to protect us lenders since there is slim (no) chance that the loans (notes) will be considered separate from LC's bankruptcy estate in the event of a Chapter 7 or 11.

Don't confuse the roles of loans and notes in this situation.

In bankruptcy proceedings, loans and notes are on the opposite side of LC balance sheet.  Loans payments (from borrowers) are "revenues", Notes payments (to Lenders) are "obligations".

The loan service agreement may assure that borrower payments will be processed, but the money will be channeled by the bankruptcy court to other creditors and equity holders before it ever gets to us lenders.

I am not sure equity holders will be higher in priority than us lenders.
Title: Re: Lending Club bankruptcy remote vehicle
Post by: Jon on October 08, 2014, 11:49:00 AM
I spent 12 years in IT for the US Courts, specifically serving the US Bankruptcy Court, 9th Circuit, Western District of Washington. 

The Department of Justice's US Trustee Program represents "The State" or "The Prosecution" in a Bankruptcy case.  It also oversees asset liquidation and distributes funds.  This is the arm of the government which will seize and liquidate assets.

What I saw in my service, the order of priority for payouts in practice - if not law - is:

1) The US Federal Government - debts to the Feds are never discharged in bankruptcy proceedings.  This means IRS debt, student loan debt etc.  Money owed Uncle Sam never goes away until paid in full.

2) Secured Creditors - debts secured by assets like an inventory of goods, real estate or something else that can be sold off to pay debtors' obligations

3) Unsecured Creditors - these are employees (maybe their paychecks bounced), the unfortunate suppliers of inventory of goods (the stuff the debtor sells for profit), the office's janitorial service, the power company, the water company, the phone company, the insurance companies, the food vendor for yesterday's company meeting  etc.  Basically, this is anyone that sent a bill and hasn't been paid.

4) Shareholders - those that own a percentage of the debtor's organization... they never get anything.

So from my experience, absent LC signing a "reaffirmation agreement," or some other legal shielding, it'd be up to the Court to decide our status. 

If I had to make a bet, I'd say LC's lawyers would zealously  argue we're unsecured creditors.  If there's an argument that we're a Secured Creditor, it's beyond my imagination, but not necessarily beyond possible.  Maybe some other department in the Executive Branch would submit a motion on our behalf.

-Jon

PS: A "reaffirmation agreement" is a written promise to pay a debt, keeping it out of bankruptcy proceedings.  There is one meeting that debtors must attend.  It's called the 351 meeting, or the meeting of creditors. 

Nordstrom, Bloomingdales and other unsecured debtors will send pretty people to lurk in the halls well before the 351 meeting, hoping to ambush the debtor, get the debtor to sign a reaffirmation agreement.  Lawyers warn debtors about this, but some people have trouble heeding warnings.  This tactic works better than I thought it would.

PPS: I see the 351 meeting is now called a 341 meeting.  That happened after I left service in 1999.
Title: Re: Lending Club bankruptcy remote vehicle
Post by: bobeubanks on October 08, 2014, 12:24:17 PM
Well we have 27 votes which break down roughly as I expected but there have been 160 views indicating 133 abstentions. I think we have to count those as very low concern or IQ.

I wouldn't make that assumption. I'm one of the views without voting because I'm in a non-LC state. I'm interested in the discussion but didn't vote. Also, I'm not sure if the forum software recounts each time a person visits a thread.
Title: Re: Lending Club bankruptcy remote vehicle
Post by: Lovinglifestyle on October 08, 2014, 12:56:08 PM
I viewed twice because I was thinking about the question before answering.  Don't views to read responses count too?
Title: Re: Lending Club bankruptcy remote vehicle
Post by: DanB on October 08, 2014, 03:49:35 PM
This servicing  agreement is about decreasing the chances (not eliminating) the likelihood of a substantial walkaway on the part of borrowers simply because they feel they don't need to pay anymore, without negative consequences.

BRV does not eliminate the risk either; borrowers might still walk away.

Yes Fred, I know that it doesn't. The BRV has nothing to do with risk that  borrowers decide to walk away. That is what the continued servicing deal is about. It is not a a question of aving one or the other. The BRVs intent has to do with segregating any interest that is paid & principal paid back so that it in the event of a bk it comes back to us (the people who lent it out). Perhaps in my haste I'm not explaining it as well as I could. No offense but you being a long time investor, I'd have thought that you'd have previously taken the time to familiarize yourself with all this.
Title: Re: Lending Club bankruptcy remote vehicle
Post by: Victor on October 08, 2014, 07:08:50 PM
@ Fred & John:

You are both absolutely correct regarding the lower status of shareholders vis a vis unsecured lenders in a bankruptcy proceeding.  My bad! It comes from talking before thinking.
Title: Re: Lending Club bankruptcy remote vehicle
Post by: Rob L on October 08, 2014, 07:21:48 PM
I am one of the lonely 6 "extremely concerned" so far.
However, I'm not "extremely concerned" but I already have limited my investment in LC because of "platform risk" so that's the only box that fit.
I consider myself "prudent" on this matter rather than "extremely concerned".
The risk is probably pretty small, but so was "breaking the buck" in the money markets.
My cash equivalents were not in the money market at the time of the meltdown, but in the ETF "SHV", which I considered much saver.
There may be those of you that will look at SHV and say I was fooling myself; and that might be true. Not sure I want to know.
However, I did my best to plan for an unimaginable event that did occur.
Does anyone really think it's less likely that an LC catastrophe will occur than the "break the buck" event?
Does anyone think the Fed and all monetary authorities of the world will come to LC's rescue, as was the case when the whole world looked over the precipice?
So, with my real money, rather than my play money, you might call me uber-conservative , or flat out paranoid.
"Only the paranoid survive" (Andy Grove).
Title: Re: Lending Club bankruptcy remote vehicle
Post by: AnilG on October 09, 2014, 06:53:03 AM
You are not alone. I am also in the extremely concerned category when it comes to BRV for LC. This segment has been wild-wild west and reminds me of combination of dot-com bubble in 1999 and housing bubble of 2007. Overall, I am very concerned with platform risks.

Premature IPO attempts by p2p platforms is also concerning. I am taking that as indication of founders, VCs and early employees want to cash out and exit while the market is hot. They may be seeing the growth reaching a plateau and increased competition. I believe we will see a lot of shake out when interest rate start to rise. Potentially stepped up government regulations of p2p platforms once investors lose money.

I am one of the lonely 6 "extremely concerned" so far.
However, I'm not "extremely concerned" but I already have limited my investment in LC because of "platform risk" so that's the only box that fit.
I consider myself "prudent" on this matter rather than "extremely concerned".
The risk is probably pretty small, but so was "breaking the buck" in the money markets.
My cash equivalents were not in the money market at the time of the meltdown, but in the ETF "SHV", which I considered much saver.
There may be those of you that will look at SHV and say I was fooling myself; and that might be true. Not sure I want to know.
However, I did my best to plan for an unimaginable event that did occur.
Does anyone really think it's less likely that an LC catastrophe will occur than the "break the buck" event?
Does anyone think the Fed and all monetary authorities of the world will come to LC's rescue, as was the case when the whole world looked over the precipice?
So, with my real money, rather than my play money, you might call me uber-conservative , or flat out paranoid.
"Only the paranoid survive" (Andy Grove).
Title: Re: Lending Club bankruptcy remote vehicle
Post by: DanB on October 09, 2014, 12:01:43 PM
Again,  I agree with you Anil though I wouldn't say I was extremely concerned with platform risk.  I push for the BRV because it's simply what we've got to protect our interests. If something else comes up tomorrow that protects us, I'll push for that too.

 Company narratives & spin aside, I see the retail investors influence on the fate of p2p to continue diminishing down the road especially if interest rates go up, which they have too at some point. Retail investors will walk in that scenario & we all know from experience what'll happen during the next economic downturn. Simply put, retail investors will see their mid one digit returns go to almost zero & then they'll wind down their accounts. 

I'm sure that LC & Prosper spin the IPO advantage on how that'll draw a massive number of new retail lenders who haven't been able to lend etc...........,but I see that as mostly wishful thinking.  In their heart of hearts I'd bet serious money that both SF companies are quite disappointed  that they've been unable to penetrate the retail lender market to a much much  greater extent than they have to date. I just don't see an IPO changing all that in some dramatic fashion. 

Hell, 3 weeks ago the average person on the street didn't know what Alibaba was.............& today after their gazillion dollar IPO most still don't know &/or care. At this point Lending Club should consider it a massive accomplishment if a post IPO awareness bump consists of nothing more than people no longer confusing them with Lending Tree!

Title: Re: Lending Club bankruptcy remote vehicle
Post by: Jon on October 09, 2014, 12:57:52 PM
I understand the concerns. 

I voted for the option of least concern because I feel powerless to improve the situation. 

If I can't take an action to address my concerns, I let it go; just invest an amount commensurate with my perception of the risk.

Is my assumption that I'm unable to improve the situation flawed?

-Jon
Title: Re: Lending Club bankruptcy remote vehicle
Post by: rawraw on October 09, 2014, 04:16:16 PM
I understand the concerns. 

I voted for the option of least concern because I feel powerless to improve the situation. 

If I can't take an action to address my concerns, I let it go; just invest an amount commensurate with my perception of the risk.

Is my assumption that I'm unable to improve the situation flawed?

-Jon
If you are limiting your investment commensurate with risk, then you are concerned.  It may just be your level of investment yet hasn't reached a threshold of extremely concerned.  If you weren't concerned, you wouldn't consider it a risk when choosing to allocate investments
Title: Re: Lending Club bankruptcy remote vehicle
Post by: SeanG on October 20, 2014, 01:29:19 AM
So did this discussion lead to any concrete steps to get retail investors the same level of bankruptcy protection as institutional investors?

I am assuming some list members have contacted LC directly and have gotten a wishy washy "we'll look into it" type of response. Es verdad?

The time to push for retail investors to have BRV protection is now (pre-IPO when LC is very vulnerable to any negative press).

I just purchased the domain name for LendingClubBankrupt.com. I want to use this website to educate all new potential retail investors how they are not given the same type of bankruptcy protection as institutional investors. It cost me about $25 (one default) so there, I took one for the team.

I hope we can organize ourselves instead of just whining about being mistreated. But it's not FAIR!!!! (wringing of hands / gnashing of teeth)

Yeah we know it's not fair that's why we need to organize and push back. LC will brush off individual complaints but will stand up and take notice if we stand up and speak with one voice. Especially if that voice is raised loudly just as they are trying to convince the rest of the world what a great company they are.

Timing is everything.

Sean
Title: Re: Lending Club bankruptcy remote vehicle
Post by: lascott on October 20, 2014, 09:15:43 AM
http://www.lendacademy.com/lending-club-files-to-go-public/

(https://forum.lendacademy.com/proxy.php?request=http%3A%2F%2Fi.imgur.com%2FcLN4It4.png&hash=d2687608b34dc53cdc2a24b493f8dcd8)
Title: Re: Lending Club bankruptcy remote vehicle
Post by: toiletpaper55 on October 22, 2014, 02:27:05 PM
So did this discussion lead to any concrete steps to get retail investors the same level of bankruptcy protection as institutional investors?

I am assuming some list members have contacted LC directly and have gotten a wishy washy "we'll look into it" type of response. Es verdad?

The time to push for retail investors to have BRV protection is now (pre-IPO when LC is very vulnerable to any negative press).

I just purchased the domain name for LendingClubBankrupt.com. I want to use this website to educate all new potential retail investors how they are not given the same type of bankruptcy protection as institutional investors. It cost me about $25 (one default) so there, I took one for the team.

I hope we can organize ourselves instead of just whining about being mistreated. But it's not FAIR!!!! (wringing of hands / gnashing of teeth)

Yeah we know it's not fair that's why we need to organize and push back. LC will brush off individual complaints but will stand up and take notice if we stand up and speak with one voice. Especially if that voice is raised loudly just as they are trying to convince the rest of the world what a great company they are.

Timing is everything.

Sean

guess there's no relief for the little guys..
Title: Re: Lending Club bankruptcy remote vehicle
Post by: Jon on October 22, 2014, 03:30:00 PM
guess there's no relief for the little guys..

The way I read Peter's statement above is that they are foregoing the BRV to assure a greater pool of retail investors and to capture more lending business from "traditional" lenders. 

If I am interpreting that a correctly, I'd probably make the same business decision. 

It's not about relief for the little guy, it's about capturing as much of the total available market as possible.  I'd rather LC be available in all 50 States than just 26.

Yes, it increases our risk, but it also increases our opportunity for reward.

Can someone confirm that I understood properly, or that I've lost the plot?

-Jon

Title: Re: Lending Club bankruptcy remote vehicle
Post by: toiletpaper55 on October 23, 2014, 12:43:31 PM
guess there's no relief for the little guys..

The way I read Peter's statement above is that they are foregoing the BRV to assure a greater pool of retail investors and to capture more lending business from "traditional" lenders. 

If I am interpreting that a correctly, I'd probably make the same business decision. 

It's not about relief for the little guy, it's about capturing as much of the total available market as possible.  I'd rather LC be available in all 50 States than just 26.

Yes, it increases our risk, but it also increases our opportunity for reward.

Can someone confirm that I understood properly, or that I've lost the plot?

-Jon

perhaps i am understanding this incorrectly. how does creating a bankruptcy remote vehicle jeopardize their blue sky exemption? from reading above, i thought such an exemption is dependent on being public. unless the creation of a brv jeopardizes their ipo, the two are unrelated.

prosper has a 'prosper funding' vehicle and probably intends to go public shortly after lc...i would speculate that lc is so focused on pushing out volume to boost their origination metrics (obv heavily reliant on institutional $) that they don't care to put in the work (which is understandably a lot if individual prospectuses are required). nonetheless, it's pretty indicative of their current priorities...

increased access by retail investors, under its current legal structure, does nothing to mitigate risk to current or any prospective (retail) investors...that very fundamental risk remains...i mean, otherwise, why wouldn't institutions be game to buy notes technically back by the platform's credit...

so not entirely sure what you mean about the "opportunity for reward"... sure, there may be more borrowers but if anything, citing "marketing reasons" for lowering borrower acquisition cost from IPO publicity is bullshit. what happens when everyone has access and it blows up? the retail investors get screwed the most (and many more of 'em). haven't we learned anything about tail risk in finance, haha ;)

anyways, like you said, i'd probably also "make the same business decision" but we're in different positions..

full disclosure: invested in lc loans but letting my portfolio runoff
Title: Re: Lending Club bankruptcy remote vehicle
Post by: DanB on October 23, 2014, 01:01:42 PM
guess there's no relief for the little guys..

The way I read Peter's statement above is that they are foregoing the BRV to assure a greater pool of retail investors and to capture more lending business from "traditional" lenders. 

If I am interpreting that a correctly, I'd probably make the same business decision. 

It's not about relief for the little guy, it's about capturing as much of the total available market as possible. I'd rather LC be available in all 50 States than just 26.

Yes, it increases our risk, but it also increases our opportunity for reward.

Can someone confirm that I understood properly, or that I've lost the plot?

-Jon

 Are you an owner of LC? No, then why would you rather? Even if what Peter is saying is factual, (& not just an unsubstantiated opinion) what difference would it make to you whether investors from say Ohio or Texas are included or excluded?

I would love to hear how exactly you think "that it also increases our opportunity for reward."

I don't know about lost the plot but I think you've been influenced way too much by the "spin" of individuals who have vested interests in the success of this company. Influenced to believe that the interests of us lenders & of this company are much more aligned than they are in reality.
Title: Re: Lending Club bankruptcy remote vehicle
Post by: core on October 23, 2014, 01:17:17 PM
Isn't it possible a BRV would jeopardize the fat cats' stakes in Lending Club?  I can almost guarantee the companies that sank millions into Lending Club didn't do so under an agreement that made their piece of the pie junior to outstanding notes.  In effect, they used our notes to guarantee that cigar smoking yacht party-goers would not lose money.  A BRV would take that away, because the buffer of several $billion would disappear.
Title: Re: Lending Club bankruptcy remote vehicle
Post by: DanB on October 23, 2014, 01:43:57 PM
Isn't it possible a BRV would jeopardize the fat cats' stakes in Lending Club?  I can almost guarantee the companies that sank millions into Lending Club didn't do so under an agreement that made their piece of the pie junior to outstanding notes.  In effect, they used our notes to guarantee that cigar smoking yacht party-goers would not lose money.  A BRV would take that away, because the buffer of several $billion would disappear.

Absolutely. That's pretty much what it would & should do.  These companies & deep pocket individuals may have sunk millions, but their potential reward as "owners" are enormous (as the IPO will demonstrate). When this first started there was no precedent though as to what a standard deal was. Making it up as they went along was not that far from reality.  I for one have no problem revisiting the quaint notion that the balance of risk & reward should be tilted so much in favor of them & not a bit more equally.

What are we asking for here? Something special? No. a BRV (similar to the one Prosper offers) gives us no more than what institutional lenders  get & no more than lenders who invest through companies like Peter's fund for the accredited already get.
Title: Re: Lending Club bankruptcy remote vehicle
Post by: Jon on October 23, 2014, 08:15:41 PM
I'm not an owner.  I just figure that the population of borrows in 26 states is less than the population of 50 states and as such, there would be a larger pool of borrows if operations are permitted in 50 states.

I haven't been reading the writings of people who have vested interests in the success of the company. 

I have funded several hundred notes on the platform so I do have a vested interest in the success of the company.  I don't really care about the IPO.

I am wondering if I should take exception to your tone, but I'm not going to make a decision on that for now.

The other side of that is that I'm wondering if I have anything to contribute to this thread, or this forum; maybe I should just return to read-only mode as my questions might be received as suspect.

If this is about lender participation, then I did lose the plot and I'm righted.   If this is about borrower participation, than my question is answered.


-Jon
Title: Re: Lending Club bankruptcy remote vehicle
Post by: core on October 23, 2014, 08:33:19 PM
I just figure that the population of borrows in 26 states is less than the population of 50 states and as such, there would be a larger pool of borrows if operations are permitted in 50 states.

I was not aware that the blue sky exemption was in any way applied to borrowers.  I thought it only applied to investors.  Something which LC certainly does not need right now.  I believe that was also what DanB was getting at.  If anyone has information to the contrary, I would certainly welcome hearing it.

I am wondering if I should take exception to your tone, but I'm not going to make a decision on that for now.

The other side of that is that I'm wondering if I have anything to contribute to this thread, or this forum; maybe I should just return to read-only mode as my questions might be received as suspect.

It is all in good fun.  If you're going to be anywhere near finance you had better have thicker skin than that.  I'd rather take my mother into a locker room than a bond trading pit.

Absolutely. That's pretty much what it would & should do. 

And that is "absolutely" why it will never happen.  They have it almost sealed up just the way they want it.  Absolute best case, they will announce that they are "looking into it".  Then the cheerleader journos will post blog entries saying "Lending Club to form BRV; stay tuned for details".  The IPO happens, and that is the last you will ever hear of it.  There is virtually nothing to accomplish here at this late date.  Aside from knocking them a new one before the IPO, that is, which I am all for.
Title: Re: Lending Club bankruptcy remote vehicle
Post by: Jon on October 23, 2014, 08:38:31 PM
Thanks, core.

-Jon
Title: Re: Lending Club bankruptcy remote vehicle
Post by: Fred93 on October 23, 2014, 11:44:55 PM
perhaps i am understanding this incorrectly. how does creating a bankruptcy remote vehicle jeopardize their blue sky exemption? from reading above, i thought such an exemption is dependent on being public. unless the creation of a brv jeopardizes their ipo, the two are unrelated.

I'm thinking that it is because the BRV is a separate company.  The BRV is not a public company, and therefore doesn't have the exemption.
Title: Re: Lending Club bankruptcy remote vehicle
Post by: hoggy1 on October 24, 2014, 07:59:29 AM
perhaps i am understanding this incorrectly. how does creating a bankruptcy remote vehicle jeopardize their blue sky exemption? from reading above, i thought such an exemption is dependent on being public. unless the creation of a brv jeopardizes their ipo, the two are unrelated.

I'm thinking that it is because the BRV is a separate company.  The BRV is not a public company, and therefore doesn't have the exemption.
That might be Fred, but the BRV is not buying or selling securities. It is just an escrow agent.
Title: Re: Lending Club bankruptcy remote vehicle
Post by: rawraw on October 24, 2014, 10:09:58 AM
Thanks, core.

-Jon
Some people are the best with interacting with others and making them feel welcomed.  Luckily, the ones who are like that actually contribute value -- which is often not the case on internet forums.  Don't let them discourage you from participating, as it's a very small amount of posters.  You can actually choose to block certain posters from appearing on this forum, if you are so inclined.

I understand your argument of more borrowers, means more revenue, means lower credit risk from LC.  That may be true in normal times, not so sure about in stressed times.  And especially not true as LC engages in these blackbox loan programs, which we don't know the extent of risk they are adding to their credit.
Title: Re: Lending Club bankruptcy remote vehicle
Post by: Jon on October 24, 2014, 10:37:05 AM
Thanks, core.

-Jon
Some people are the best with interacting with others and making them feel welcomed.  Luckily, the ones who are like that actually contribute value -- which is often not the case on internet forums.  Don't let them discourage you from participating, as it's a very small amount of posters.  You can actually choose to block certain posters from appearing on this forum, if you are so inclined.

I understand your argument of more borrowers, means more revenue, means lower credit risk from LC.  That may be true in normal times, not so sure about in stressed times.  And especially not true as LC engages in these blackbox loan programs, which we don't know the extent of risk they are adding to their credit.

Thanks, rawraw.  Can you explain what you mean by "normal times" and "stressed times?"

To me, "normal times" is a 10 year US treasury yield above 3-4%. 

I have no doubt that our individual investor risks are increased with blackbox loan programs and all other undisclosed dealings that could turn us all into unsecured creditors, but I'm not concerned enough to take any action beyond prudent diversification.


-Jon
Title: Re: Lending Club bankruptcy remote vehicle
Post by: rawraw on October 24, 2014, 10:50:06 AM
Interest rates can be indication, but I'm talking about stressed times which would involve increasing defaults and reduced demand by banks for additional credit as they tighten. Lending Club is really dependent on origination fee income, which can disappear if demand takes a dive due to the low in a credit cycle.
Title: Re: Lending Club bankruptcy remote vehicle
Post by: Jon on October 24, 2014, 11:58:18 AM
Thanks, rawraw!

-Jon
Title: Re: Lending Club bankruptcy remote vehicle
Post by: Fred93 on October 24, 2014, 02:13:51 PM
perhaps i am understanding this incorrectly. how does creating a bankruptcy remote vehicle jeopardize their blue sky exemption? from reading above, i thought such an exemption is dependent on being public. unless the creation of a brv jeopardizes their ipo, the two are unrelated.

I'm thinking that it is because the BRV is a separate company.  The BRV is not a public company, and therefore doesn't have the exemption.
That might be Fred, but the BRV is not buying or selling securities. It is just an escrow agent.

I'm not a lawyer, but I don't think your interpretation is quite right.  The BRV has to actually  "own" the loans.  Its not just an escrow agent.  An escrow agent simply takes custody temporarily of things owned by others.

Beyond that, attempting to use logic to understand the legal situation would be speculative.  I don't have the energy to find the laws in question, read them, etc.
Title: Re: Lending Club bankruptcy remote vehicle
Post by: toiletpaper55 on October 27, 2014, 02:17:07 PM
perhaps i am understanding this incorrectly. how does creating a bankruptcy remote vehicle jeopardize their blue sky exemption? from reading above, i thought such an exemption is dependent on being public. unless the creation of a brv jeopardizes their ipo, the two are unrelated.

I'm thinking that it is because the BRV is a separate company.  The BRV is not a public company, and therefore doesn't have the exemption.
That might be Fred, but the BRV is not buying or selling securities. It is just an escrow agent.

I'm not a lawyer, but I don't think your interpretation is quite right.  The BRV has to actually  "own" the loans.  Its not just an escrow agent.  An escrow agent simply takes custody temporarily of things owned by others.

Beyond that, attempting to use logic to understand the legal situation would be speculative.  I don't have the energy to find the laws in question, read them, etc.

my bad; i also wasn't aware that the blue sky exemption applies to BORROWERS. this makes more sense.

and yes, the BRV should technically own the loans in a separate entity and the institutions either own an equity stake in the vehicle or have notes back by the assets within..
Title: Re: Lending Club bankruptcy remote vehicle
Post by: Gatsby on April 05, 2016, 11:42:19 AM
So what happens if Prosper/LC files for bankruptcy? Who do we contact?
Title: Re: Lending Club bankruptcy remote vehicle
Post by: dompazz on April 05, 2016, 02:45:41 PM
So what happens if Prosper/LC files for bankruptcy? Who do we contact?

In order:
1. Your wife/significant other, "honey remember that money I was investing..."
2. Your local bartender.
3. If your investment is large enough, an attorney specializing in bankruptcy claims and securities law.
    3.1 If not, wait until the dust settles and a lawyer contacts you either for the bankruptcy settlement or the class action lawsuit, or both.
4. Repeat #2 as necessary.

Title: Re: Lending Club bankruptcy remote vehicle
Post by: fliphusker on April 05, 2016, 04:55:14 PM
So what happens if Prosper/LC files for bankruptcy? Who do we contact?

In order:
1. Your wife/significant other, "honey remember that money I was investing..."
2. Your local bartender.
3. If your investment is large enough, an attorney specializing in bankruptcy claims and securities law.
    3.1 If not, wait until the dust settles and a lawyer contacts you either for the bankruptcy settlement or the class action lawsuit, or both.
4. Repeat #2 as necessary.
Think you actually might go with 2 ahead of 1.  Might hurt less when she is beating you with a higher blood alcohol level.  :P
Title: Re: Lending Club bankruptcy remote vehicle
Post by: dompazz on April 05, 2016, 05:53:36 PM
So what happens if Prosper/LC files for bankruptcy? Who do we contact?

In order:
1. Your wife/significant other, "honey remember that money I was investing..."
2. Your local bartender.
3. If your investment is large enough, an attorney specializing in bankruptcy claims and securities law.
    3.1 If not, wait until the dust settles and a lawyer contacts you either for the bankruptcy settlement or the class action lawsuit, or both.
4. Repeat #2 as necessary.
Think you actually might go with 2 ahead of 1.  Might hurt less when she is beating you with a higher blood alcohol level.  :P
Yeah, but alcohol is an anti-coagulant so you'll bleed more.  I think I would rather use it after the fact to dull both the physical and emotional bruising. 
Title: Re: Lending Club bankruptcy remote vehicle
Post by: lender90530 on April 09, 2016, 01:48:13 PM
I invested high 5 figures in Lending club notes, and so far have been very satisfied with the returns. However, I have stopped re-investing cash from paid off notes, and plan on withdrawing cash as it accumulates. When I started investing a couple of years ago, I had hopes that Lending Club would eventually implement a BRV for retail investors, but have given up on that happening. In the event of Lending Club failing, I think I would just be another unsecured creditor waiting in line to pick at the bones of a dead corporation. While Lending Club may have a strong balance sheet now with little or no debt, I don't think there are any covenants protecting retail investors from Lending Club incurring debt in the future to do stock buybacks, or making acquisitions that may or may not succeed. Lending Club, I think, would like retail participation to grow because its funds are more stable than institutional hot money; from this perspective, I think it was a big mistake for Lending Club to go public before implementing a BRV like Prosper did for retail investors. After going public, every day I can see stock market investors' best opinion of the future prospects for the company, and it doesn't seem very encouraging with the stock down significantly from its IPO price; this makes me nervous. One of the reasons, I invested in Lending Club notes was to escape the gyrations and risks of the stock market; without a BRV, it has just followed me, which is why I am cashing out despite the excellent returns.
Title: Re: Lending Club bankruptcy remote vehicle
Post by: Fred93 on April 09, 2016, 03:42:00 PM
While Lending Club may have a strong balance sheet now with little or no debt, I don't think there are any covenants protecting retail investors from Lending Club incurring debt in the future to do stock buybacks, or making acquisitions that may or may not succeed.

A valid concern.

Here's how I think about it.  Suppose that in some future year, LC takes on debt by issuing bonds, and then in some future year after that they go bankrupt.   Suppose the bankruptcy judge gave us investors no special status, so our "notes" are ranked equally with those "bonds".  Lets think about how bad that might be.

First, how we (note holders) come out depends on what the balance sheet looks like at that time.  What would the balance sheet look like?  Today the balance sheet is dominated by 4.5B of active loans on one side (assets), and 4.5B of notes (liabilities) to us investors.  I'm going to ignore stockholder's equity, because we'll assume that the stockholders are wiped out in the bankruptcy.  Today there's also 600M in cash on the balance sheet, but we'll assume they've burned thru all of that before declaring bankruptcy.

Next year,  lets say end of 2016, the active loans will be something like $6B, matched by same $ of notes to investors.  The year after that, say 2017, it may be $9B on each side.  Suppose they then issue some very large amount of bonds.  A $1B bond offering would be considered large.  Lets go with that.   Now it would take them awhile to eat thru the $1B of cash from that bond sale, so lets give them a year before they go bankrupt.  So now we're at the end of 2018, at which time the balance sheet will probably show $14B of active loans, matched precisely by $14B of notes to us investors, and of course that $1B of bonds.

Suppose they go bankrupt at this point.  Ignore the value of their furniture and whatnot, because it is small.  Suppose that the brand has been so tarnished that no one will buy the brand or existing business out of bankruptcy.  Suppose that by this time P2P lending is so tarnished by scandals and bankruptcies that no one even wants to buy the customer relationships.  I'm trying to be worst case pessimistic here.  The business just stops.  (A rare situation, but it has happened.)   There will be some employee related costs, and some legal fees.  Suppose those add up to $100M.

Now lets see what assets and liabilities we are left with.  We'll assume that the judge gives us no special treatment, and just shaves everybody equally.

I see $14B of assets, and $15.1B of liabilities.  The assets cover 92.7% of the liabilities, and we all take a 7.3% haircut.

I don't see that as the end of the world. 

Ok, maybe this isn't worst case yet.  Maybe in addition to those bonds, suppose they took on bank loans in the amount of $1B.

Then we'd have $14B of assets and $16.1B of liabilities.  The assets would cover 87% of the liabilities, and we'd take a 13% haircut.   I would complain a lot, but still not end of the world.

I took a much much much bigger loss in my stock investments in 2002 and 2008.  I took a bigger loss in my oil stocks in 2015. 

When you invest in stocks, and consider the chance that a company you invest in might go bankrupt, you have to think of it as some probability that you will lose 100% of your investment.  When you invest in bonds, it is seldom that bad, and in this case in particular, the fact that the balance sheet is ballasted by this huge pile of consumer loans really improves the situation.

To be complete, I want to admit that there is one kind of loss that I didn't count in this calculation.  Sometimes in a bankruptcy it is revealed that some of the assets on the balance sheet aren't in good shape, and may be worth less than the number shown.  I've left this possibility out because as an investor in LC notes, you already have made a judgement that the underlying loans are good.  For this reason, the above calculation is just about what might happen if the company goes bankrupt while the loans they've made are good.

It is possible of course that consumer loans will go to crap at some point in the future, but you take that risk when you invest in notes thru LC already.  This calculation is about the risk that you will lose money in an LC bankruptcy, which we presume you would not have lost if there had been a bankruptcy-remote-vehicle.  To say it a different way, this is about the specific risk we take because we do not have a BRV.

Of course the most likely scenario is that they do not go bankrupt at all, but continue as an ongoing business.  If they do run into trouble, the most likely scenario is a buyout (at a very low price) by another lender, or some other reorganization which does not haircut our notes at all.
Title: Re: Lending Club bankruptcy remote vehicle
Post by: jz451 on April 09, 2016, 04:50:10 PM
When I've gone over this to me it leads in the direction that noteholders will not be. While not 100% for certain I am confident that a bankruptcy judge would separate the assets/liabilities of the noteholders and people issued loans with the assets/liabilities for the operations of Lending Club. Just imagine what would happen in this case if a judge lumped all assets/liabilities together. A class-action lawsuit would surely come about on our behalf to make sure all existing loans are paid out to noteholders with the fees paid to the creditors.
Title: Re: Lending Club bankruptcy remote vehicle
Post by: rawraw on April 09, 2016, 08:33:26 PM
I've known of some stupid decisions from bankruptcy courts when it comes to financial matters that has cost investors lots of money unfairly.  Never know what that judge may come up with in terms of our legal status