Author Topic: Link between LC Stock price and the lack of BRV?  (Read 3734 times)

dompazz

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Link between LC Stock price and the lack of BRV?
« on: April 10, 2016, 04:21:47 PM »
I was chatting with a friend that works as an institutional investor.  He was curious about P2P Lending and Lending Club specifically.  During our discussion, he mentioned how he wouldn't invest in the stock as it has been a dog and I mentioned the huge short interest.  Later we talked about the lack of a bankruptcy remote vehicle and how a LC bankruptcy could really hose retail investors.  In passing he said, "I would just hedge that by shorting the stock." 

That's when it hit me.  The huge short interest in LC stock could very well be hedges by the institutional crowd.

Thoughts?

Anyone out there that is willing to fess up that they, too, already thought of this and are short LC stock?

lender90530

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Re: Link between LC Stock price and the lack of BRV?
« Reply #1 on: April 10, 2016, 04:36:11 PM »
My understanding is that the institutional crowd and high rollers that invest through LC Advisors, a subsidiary of Lending Club, already have a BRV; LC Advisors provides them with one. Lending Club refuses to provide retail investors with the same protection. Seeing as Prosper is able to provide retail investors with a BRV, I wonder why.

Fred93

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Re: Link between LC Stock price and the lack of BRV?
« Reply #2 on: April 10, 2016, 04:51:19 PM »
I believe LC's stock is down simply because at IPO time it was overhyped and came out at a price that was just too high.  It has subsequently corrected.  My thinking is that it is the hype that has come down, not the value of the company.

yojoakak

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Re: Link between LC Stock price and the lack of BRV?
« Reply #3 on: April 10, 2016, 08:44:33 PM »
For anyone interested in the short interest:

http://www.nasdaq.com/symbol/lc/short-interest

dompazz

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Re: Link between LC Stock price and the lack of BRV?
« Reply #4 on: April 10, 2016, 11:17:30 PM »
For anyone interested in the short interest:

http://www.nasdaq.com/symbol/lc/short-interest
It was something outrageous like 30% of the float last I looked.  A short squeeze would be brutal. 

Anyone know what the borrow is?  Lending LC stock might be an interesting proposition if it is high enough.

Fred

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Re: Link between LC Stock price and the lack of BRV?
« Reply #5 on: April 11, 2016, 03:06:47 AM »
I wouldn't be surprised if those institutional investors are doing some form of "capital structure arbitrage" -- long on LC notes, short on LC equities.  If LC is doing well, the notes will produce the returns; if LC tanks, the short on equity will compensate of the loss from notes.

Either way, with a volatile stock like LC, those guys must prepare enough cash for margin calls.

Jim G

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Re: Link between LC Stock price and the lack of BRV?
« Reply #6 on: April 11, 2016, 07:02:23 PM »
I was chatting with a friend that works as an institutional investor.  He was curious about P2P Lending and Lending Club specifically.  During our discussion, he mentioned how he wouldn't invest in the stock as it has been a dog and I mentioned the huge short interest.  Later we talked about the lack of a bankruptcy remote vehicle and how a LC bankruptcy could really hose retail investors.  In passing he said, "I would just hedge that by shorting the stock." 

That's when it hit me.  The huge short interest in LC stock could very well be hedges by the institutional crowd.

Thoughts?

Anyone out there that is willing to fess up that they, too, already thought of this and are short LC stock?

Shorting the stock as a hedge against the notes makes no sense.  The two have no connection.  Often you will see convertible bond holders shorting the stock to hedge their bonds but that is because the two have a direct link and conversion price.  Not so with notes. 

dompazz

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Re: Link between LC Stock price and the lack of BRV?
« Reply #7 on: April 11, 2016, 07:59:11 PM »
Shorting the stock as a hedge against the notes makes no sense.  The two have no connection.  Often you will see convertible bond holders shorting the stock to hedge their bonds but that is because the two have a direct link and conversion price.  Not so with notes.

What happens if LC goes bankrupt?  The stock goes to 0.  Your note is not securitized by the loan -- you an an unsecured creditor to LC who is now in bankruptcy.  You get to stand in line with all the other creditors and hope you get some money back, usually after a year or two of lawyers' fees eating away at the capital. 

So yes, your notes and LC stock are highly correlated in a bankruptcy scenario.

Jim G

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Re: Link between LC Stock price and the lack of BRV?
« Reply #8 on: April 12, 2016, 09:46:59 AM »
The only correlation is that the notes could possibly go to zero and the stock goes to zero and if you hedged the same dollar amount than yes you are covered. But if the other scenario is true and the stock goes up 500% in a year and the notes only make 7% than you are losing big time.  Not much of a hedge.  In a convertible bond scenario as I mentioned it doesn't matter if the stock goes up and against your short because the bonds you own can be converted at a certain strike price thus limiting your loss if the stock goes up but still allowing you to make money by collecting interest on the bonds plus affording you full payback on the principal loan amount through a conversion.  So if you were to hedge by shorting the stock, you are opening up your self to unlimited losses.  Tow separate bets in my opinion.