Poll

What are you doing with the LC notes now?

Selling all notes
2 (3.6%)
Selling less than 1/2 of the notes strategically
5 (9.1%)
No buy or sell
22 (40%)
Cherry picking notes in Folio with idle cash
11 (20%)
Adding cash to buy more discounted premium notes in Folio
4 (7.3%)
Business as usual (added 2 days later)
11 (20%)

Total Members Voted: 54

Voting closed: May 23, 2016, 11:16:04 PM

Author Topic: What are you doing with the LC notes now?  (Read 9998 times)

RaymondG

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What are you doing with the LC notes now?
« on: May 13, 2016, 11:16:04 PM »
I am selling about 1/4 of all notes in Folio to deleverage my LC account.

Update: sold a bunch today and lost close to $300+fee. This month will likely have negative return :(  Bye bye notes. But I will come back! >:(
« Last Edit: May 13, 2016, 11:36:28 PM by RaymondG »

jheizer

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Re: What are you doing with the LC notes now?
« Reply #1 on: May 13, 2016, 11:41:49 PM »
I picked "Cherry picking notes in Folio with idle cash" as it is most relevant to this even though it was only a few notes.  But I always have ~1/2 my account on folio for a too high mark up.  Today I lowered that markup to be not quite as crazy.
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RaymondG

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Re: What are you doing with the LC notes now?
« Reply #2 on: May 13, 2016, 11:48:30 PM »
I picked "Cherry picking notes in Folio with idle cash" as it is most relevant to this even though it was only a few notes.  But I always have ~1/2 my account on folio for a too high mark up.  Today I lowered that markup to be not quite as crazy.
Great opportunity for cherry picking notes in Folio now. I had been buying these notes with UP/FLAT and with premium <= 0.5% in past four months. There were just enough of them to use up my cash. Now, four times volume and a lot of them are in 4-5% discount.

jheizer

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Re: What are you doing with the LC notes now?
« Reply #3 on: May 14, 2016, 12:09:54 AM »
Well some may call me crazy but my cash is all gone.  I can't resist UP loans discounted 5% that hit all my criteria if they were new loans. Too bad I never got around to automating folio.  It never seemed worth the effort since I stopped adding new money in Jan or Feb.  The $200 or so a week that comes in from payments is easily put into fresh loans.  I wonder if I can sell some more of my decent but not amazing loans at par  just to try to get more discounted ones.  I hope HR tax software is supported this year :)
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jheizer

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Re: What are you doing with the LC notes now?
« Reply #4 on: May 14, 2016, 12:16:22 AM »
Plenty of people are buying and selling.  I have been refreshing a more tightened filter and blocks of loans are appearing and being bought right up.  Others are jumping in for the fire sale.
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fliphusker

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Re: What are you doing with the LC notes now?
« Reply #5 on: May 14, 2016, 12:43:53 AM »
Same boat as others, no notes on LC for my filter.  Hopped on folio, same criteria, loads of E notes with nice deep cut, 9 month old, 60 month.  I will take a shot at these solid notes, at steep discount.  Their panic is my gain, or their panic is my loss. 
Guess the question is, who is on tilt here?

storm

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Re: What are you doing with the LC notes now?
« Reply #6 on: May 14, 2016, 01:07:32 AM »
I'm finding lots of bargains on Folio right now.  I've put my automated investing on hold as I have been able to find second-hand notes with the same narrow criteria I use for new notes with flat or upward FICO score trend and at a  2-5% discount.  Prior to this week, it was extremely rare to find them discounted.  My returns are holding steady.  I think unless you are a stockholder or institutional investor, this week's news doesn't really have any impact.

That said, if I could diversify into Prosper loans in my state, I would probably look into that.  I might put my future contributions toward paying down my mortgage.  But then there are bargains to be had on Folio.  Decisions, decisions...

RaymondG

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Re: What are you doing with the LC notes now?
« Reply #7 on: May 14, 2016, 07:58:56 AM »
I think unless you are a stockholder or institutional investor, this week's news doesn't really have any impact.
That's where I am uncertain about.  If LC is not sold or is bought at par or premium, we are fine; If bankrupt, are we, the investors on notes, debtors to LC before equity holder but after senior loan holders? If it is bought at big discount, will our notes be devalued accordingly?

newstreet

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Re: What are you doing with the LC notes now?
« Reply #8 on: May 14, 2016, 09:24:53 AM »
You would be subordinate.....good luck with that

Fred93

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Re: What are you doing with the LC notes now?
« Reply #9 on: May 14, 2016, 04:15:23 PM »
If bankrupt, are we, the investors on notes, debtors to LC before equity holder but after senior loan holders? If it is bought at big discount, will our notes be devalued accordingly?

There really aren't any "senior loan holders" above us.  This company hasn't borrowed money.  Our notes are the debt on the balance sheet.  Therefore, there's not much that could dilute us.  Of course between now and the date of a supposed bankruptcy, this could change.

Rude Dude

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Re: What are you doing with the LC notes now?
« Reply #10 on: May 14, 2016, 08:14:44 PM »
If bankrupt, are we, the investors on notes, debtors to LC before equity holder but after senior loan holders? If it is bought at big discount, will our notes be devalued accordingly?

There really aren't any "senior loan holders" above us.  This company hasn't borrowed money.  Our notes are the debt on the balance sheet.  Therefore, there's not much that could dilute us.  Of course between now and the date of a supposed bankruptcy, this could change.

A couple of questions:
In the event of LC's BK, how would a BK Trustee and/or a Receiver affect the flow of Note payments? LC has a primary (and back-up) servicer, but how long would the Receiver hold the monthly payments? I doubt retail investors in the Notes would continue to receive payments on a monthly basis - there could be a long delay and returns to investors could be affected. This has usually been the case when finance companies or small banks fail.

Who actually owns the Notes? If I'm not mistaken, LC does, not retail investors. The notes are borrower-dependent pass through investments, or, put another way, each note is a very very small investment in LC the company. Wouldn't this affect the face value of the Notes? Couldn't a BK trustee potentially liquidate the assets (the Notes) at less than face value to cover any of the company's expenses and liabilities? I haven't studied LC's balance sheet recently, but usually Fred is right up on things and apparently LC hasn't borrowed money - I hope this is the case.


Fred93

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Re: What are you doing with the LC notes now?
« Reply #11 on: May 14, 2016, 08:53:12 PM »
In the event of LC's BK, how would a BK Trustee and/or a Receiver affect the flow of Note payments?

First, this is highly speculative, because I don't think LC is going BK.  This is a what-would-happen-if-they-did discussion.  Its all my opinion.  The legal process has uncertainties, so even if I'm "right" about facts and law, lawyers can always make arguments and judges, although they try very hard, can get things wrong.  Anything can happen.  (Oh, and by the way: I'm not a lawyer.)  That being said...

Once there is BK, everything is determined by the judge.  The trustee would decide how he would like to do a thing, and then he would present that to the judge.  Some of us may have different opinions, which our counsel presents to the judge.  The judge decides.


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LC has a primary (and back-up) servicer, but how long would the Receiver hold the monthly payments?

In BK, everything is determined by the judge.  Investors would present arguments that the payments ought to flow thru.  The judge would no doubt understand that the investors are a large constituency for whom the withholding of payments could represent a hardship.  He will probably direct the trustee to let these payments proceed.  However, its all his decision.  If he hears arguments that there is some higher priority constituency who may be at risk, or if the trustee tells him there is some legal issue with the servicer, he could order a delay, 'cause he has broad power to weigh the arguments and decide what happens.


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Who actually owns the Notes? If I'm not mistaken, LC does, not retail investors.

No.  I think you understand but you gotta be careful with terminology.  "Loans" are the thing between LC and the borrower.  "Notes" are the things between you and me (investors) and LC. 

You and I and other investors own "notes", which are obligations of LC. 

LC owns "loans" which are obligations of borrowers.


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The notes are borrower-dependent pass through investments, or, put another way, each note is a very very small investment in LC the company.

Precisely.


Quote
Wouldn't this affect the face value of the Notes? Couldn't a BK trustee potentially liquidate the assets (the Notes) at less than face value to cover any of the company's expenses and liabilities?

The trustee can't liquidate "notes", because he is only in charge of things LC owns.  You and I own the "notes".

The trustee can liquidate assets of the bankrupt company.  He needs to get the judge to tell him he can do this before he does it.  Before the judge rules, he is open to hear arguments from all constituencies.  You and I would write letters explaining how we could be harmed by delay, etc.  There would no doubt be counsel in the courtroom hired by some investors to explain in person.

As a practical matter, the judge would only take from you and me (ie liquidate loans needed to service our notes) if the company had run out of cash, and there was no more furniture or brand name or customer lists or other assets to sell, and there was still some constituency above us who needed to be paid.  Perhaps back wages or taxes or something like that.  Of course this presumes that the judge sees things as I do, which is unknowable.

So IF the judge ordered it, the trustee could indeed liquidate "loans" owned by the bankrupt company.  There would have to be good reason, and the judge would consider our interests before making such a decision. 

In the MF Global bankruptcy, which was very complicated, due to their being several corporations in the MF Global  hierarchy, and several different countries involved, each with their own bankruptcy trustee, bankruptcy judge, etc.  The big bond holders (Chase Manhattan) had big time lawyers fighting against the rights of us little customers.  A guy (James Koutoulas) who happened to be both a customer and a lawyer told the judge that he wanted to speak for customers.  Initially the judge said he had no standing to do so.  After 10,000 of us customers wrote to the judge saying we'd like Koutoulas to speak for us, and 1,000 of us signed legal paperwork to actually make him our lawyer, the judge gave him status, and he represented our interests very well.  He did such a good job that Jamie Dimon (CEO of Chase) cancelled Koutoulas' credit card in spite.  By the way, although it took over 2 years, we beat back the Chase lawyers and all the lawyers and regulators in other countries, and customers like me got all our money back.

Sometimes it is difficult for the little guys to get good representation, but there are ways.

Judges try very hard to consider the rights of all the stake holders.  We may be the little guys, but there are a lot of us, and because we hold "notes" that are high up the capital structure, our rights are very significant, and pretty clear.

Lovinglifestyle

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Re: What are you doing with the LC notes now?
« Reply #12 on: May 14, 2016, 09:16:36 PM »
Every time I hear "Servicing Agreement" I'm reminded of Loanio, which made no effort to collect payments from borrowers who decided they were tired of paying.  Anybody know if LC has a new agreement which also includes the services of a collections department?


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

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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.

nonattender

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Re: What are you doing with the LC notes now?
« Reply #13 on: May 14, 2016, 09:28:12 PM »
Every time I hear "Servicing Agreement" I'm reminded of Loanio, which made no effort to collect payments from borrowers who decided they were tired of paying.

Remember the securitization of loans from "CircleBack" that touched off all the credit deterioration worries a few months ago?  Yup!
A little nonsense now and then is relished by the wisest men.

Rude Dude

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Re: What are you doing with the LC notes now?
« Reply #14 on: May 14, 2016, 09:41:20 PM »
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

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...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...

Fred, thanks for the answers - very helpful. I can't imagine what it must have been like to go through the MF Global bankruptcy. And, yes, I should preface that the possibility of LC's BK is pure speculation. And I understand that the judge would ultimately render a decision about the company's BK.

However, the quote above nails the issue: that a judge could find that the Loans are part of LC's estate. And, the quote above, which appears to have come from LC directly, mentions that PFSC "may not be able to make pmts on the Notes" if that were to happen.

Your thoughts?