How worried are you about LC future?

[fliphusker]

Fred put up some good polls the other day, but I am curious to see what level people are at.  I would have liked to have more then 5 options though.  This is not scientific, and sorry if my wording does not encompass a section for everyone. 
1 vote each, poll open 90 days.
For me, only investing now on FOLIO.  Nice bargains on notes that meet my criteria. 

[sommers]

With all the apparent confusion (at least on this forum) about the legal status of our notes--how can a reasonable person not be worried?
I remain amazed at the lack of posts and participation of note holders on this basic issue
Is there another forum somewhere on the web that I'm not aware of (discussing this situation from a note holder perspective)?

[Fred93]

With all the apparent confusion (at least on this forum) about the legal status of our notes--how can a reasonable person not be worried?

There is ZERO legal confusion about status of our notes.

There is only confusion about events in the future.  (In other words, a few people worry that massive additional very bad things will happen resulting in some loss to note investors.)

[fliphusker]

I have no clue if there are other sites where retail side investors gather more, have never found one. 
I think some here are just not flying off the handle, and are cautiously optimistic waiting for the 10Q and hopefully a statement by Sanborn.   LC stock has seen a bit of a rebound today at least. 

[RaymondG]

None of option suits me. I sold portion of notes and with loss. However, I choose "5-6" as my worry level.

By the way, you can always *edit* your poll to add more options.

[fliphusker]

None of option suits me. I sold portion of notes and with loss. However, I choose "5-6" as my worry level.

By the way, you can always *edit* your poll to add more options.

I did not see that I could add more options, until you pointed it out.  Think I will leave it like it is and not add "other" or other options.  Apologize it was not done better.    I was just trying to get a general feeling for how people are viewing things right now.

[LonghornSF]

I sold a few notes but am just staying put for the most part. I'm not going to sell my notes at any meaningful discount unless the situation deteriorates a lot.

FYI - they just released the 10-Q.

[sommers]

With all the apparent confusion (at least on this forum) about the legal status of our notes--how can a reasonable person not be worried?

There is ZERO legal confusion about status of our notes.

There is only confusion about events in the future.  (In other words, a few people worry that massive additional very bad things will happen resulting in some loss to note investors.)

Okay---then tell me what our legal status is? 

[sommers]

I have no clue if there are other sites where retail side investors gather more, have never found one. 
I think some here are just not flying off the handle, and are cautiously optimistic waiting for the 10Q and hopefully a statement by Sanborn.   LC stock has seen a bit of a rebound today at least.

I just got more information from the LC stock message board on Yahoo business.  Here is this person's quote from the board_-----

"Read yoru agreements. There is a 3rd party servicer setup to service the loans should LC go BK (they won't). Who asked LC to setup the 3rd party servicer? Big investors, banks, private equity. Why? Purely for protecting their investments. All done long ago and nothing to do with today. Prosper is the same setup. I've worked for both companies."

Is this valid?  (and yes--he's correct--I need to read my documentation (need to find it first)

[rawraw]

I have no clue if there are other sites where retail side investors gather more, have never found one. 
I think some here are just not flying off the handle, and are cautiously optimistic waiting for the 10Q and hopefully a statement by Sanborn.   LC stock has seen a bit of a rebound today at least.

I just got more information from the LC stock message board on Yahoo business.  Here is this person's quote from the board_-----

"Read yoru agreements. There is a 3rd party servicer setup to service the loans should LC go BK (they won't). Who asked LC to setup the 3rd party servicer? Big investors, banks, private equity. Why? Purely for protecting their investments. All done long ago and nothing to do with today. Prosper is the same setup. I've worked for both companies."

Is this valid?  (and yes--he's correct--I need to read my documentation (need to find it first)

Valid that it exists, not valid for why it exists. It's existed much longer than the big money has.

There are three possibilities for Lending Club: business as usual, merger, or bankruptcy. The question is about your perception of the probability of these three possibilities. I think LC incentives are to sell before bankruptcy, to avoid making investors upset. While we "should" get paid out in bankruptcy , there may be a period where our investment is not earning interest and it is not accessible.

My probability estimates is probably business as usual, maybe merger, not likely bankruptcy. I am worried slightly and don't understand why anyone wouldn't.  The next question after probabilities of those three events is risk tolerance. There are some solid opportunities on Folio.

I stopped reading this forum lately   because I don't like reading opinions not grounded in reality, given I need clarity when thinking about the markets. Conspiracy theories or abundant optimism ends up influencing the range of outcomes I come up with and can too easily sway my assessment of possibilities and their probability

If you want to discuss LC and hear my take, feel free to pm me. 

Sent from my SAMSUNG-SM-G935A using Tapatalk

[LonghornSF]

I just got more information from the LC stock message board on Yahoo business.  Here is this person's quote from the board_-----

"Read yoru agreements. There is a 3rd party servicer setup to service the loans should LC go BK (they won't). Who asked LC to setup the 3rd party servicer? Big investors, banks, private equity. Why? Purely for protecting their investments. All done long ago and nothing to do with today. Prosper is the same setup. I've worked for both companies."

Is this valid?  (and yes--he's correct--I need to read my documentation (need to find it first)

Having a third party servicer does not entirely solve the problem. If LC fails, the loans will be serviced (i.e. payments collected), but the question is who gets the proceeds of the loan? Retail investors are in line with all other unsecured creditors to receive payment. Put another way: if LC goes bankrupt and owed $1bn to employees, suppliers, etc. and $10bn to investors then the proceeds from loans will be split amongst all $11bn in creditors.

This is a bit of a hypothetical question since 1) LC currently has net cash of ~$600mn 2) LC is nowhere near bankruptcy. This does highlight an underlying issue that the company must eventually address though.

[jz451]

People shouldn't be worried in my opinion. after seeing several other posters saying that we will be screwed in a bankruptcy is silly. To prove it I simply looked at the 10-Q posted on the forum and  looked at the income statement and balance sheet. From five minutes looking at it there is $4.7B in notes paid to us, $583M cash and $104M in restricted cash, with no other major liabilities. Looking at the costs and tax, for the quarter equals $148M. So if LC goes bankrupt today, all the cash pays a years worth of expenses. I am confident that even with no cash we could likely get back at least 80-90% (guesstimate) of our investment back no problem.

[Rob L]

LC's stock closed at $7.10 on Friday 5/7, opened at $5.39 on Monday 5/9 after the news regarding RL's and three other's firing, loans back dated, RL conflict of interest with Cirrix, etc. I was a stock holder through this brief period (though a very much larger note holder in LC loans). Things do not have seemed to have improved over the past week.

For the sake of argument lets say all the drop in the stock price was caused by the bad news (after all LC made it's quarterly earnings number and it's first quarterly profit ever I think). Lawyers will make this argument; possibly more (they will go back all the way to the IPO). So, $7.10 - $5.39 = $1.71 loss per share x 381 million shares outstanding = $651M and change loss. That's more than the $583M LC has in cash. The stockholders have a legitimate gripe. Maybe that's why law firms are coming out of the woodwork to "investigate" LC for investors with a loss. What will the judge say (and there will be one) regarding the division of LC's assets amongst its claimants? "What, me worry?" ... AEN

Update:
Lawyers are not only investigating; a class action suit has been filed though they are still trolling for claimants:
http://finance.yahoo.com/news/equity-alert-rosen-law-firm-222800444.html

[AnilG]

LC Access to Cash and other Funds

Cash and cash equivalents $583.842 million
Restricted cash $104.485 million
Secured Revolving Credit $120 million

Total Funds Available $1,094 million.
Loans Originated in Q1 $2,750 million.

This exercise assumes all expenses will be met by income and all cash can be used to fund new loans.

Total Internal Capacity to Originate Loans in next 3 months if originations were to stay same as previous quarter = 1,094/2,750 = 39.8%

Assuming 30% drop in new originations for next 3 months, loan originations = 2,750 x 0.70 = $1,925 million. Total Internal Capacity to Originate Loans in next 3 months = 1,094/1,925 = 56.8%

Assuming only 50% of new originations in next 3 months funded by external funds. Total internal funds required = 1,925 x 0.50 = 962.50 million. Total Internal Capacity to Originate Loans = 1,094/962.50 = 114%. It appears LC may be able to handle up to 50% drop in external funding and still manage loan originations next 3 months.

I am pretty sure large institutions are running what-if scenarios like this and doing all kind of financial modeling. Sharks are circling the blood. These institutions are going to demand very favorable terms to fund and buy LC loans. LC may not have more than a Quarter or two to get the ship upright.

[jz451]

They need to start attracting more individual investors to make up for the loss of institutions, but I hardly see that happening anytime soon. That seems to be the problem with P2P investing where they platforms want to grow quickly but growth in the volume of money invested by individuals lags behind.

LC Access to Cash and other Funds

Cash and cash equivalents $583.842 million
Restricted cash $104.485 million
Secured Revolving Credit $120 million

Total Funds Available $1,094 million.
Loans Originated in Q1 $2,750 million.

This exercise assumes all expenses will be met by income and all cash can be used to fund new loans.

Total Internal Capacity to Originate Loans in next 3 months if originations were to stay same as previous quarter = 1,094/2,750 = 39.8%

Assuming 30% drop in new originations for next 3 months, loan originations = 2,750 x 0.70 = $1,925 million. Total Internal Capacity to Originate Loans in next 3 months = 1,094/1,925 = 56.8%

Assuming only 50% of new originations in next 3 months funded by external funds. Total internal funds required = 1,925 x 0.50 = 962.50 million. Total Internal Capacity to Originate Loans = 1,094/962.50 = 114%. It appears LC may be able to handle up to 50% drop in external funding and still manage loan originations next 3 months.

I am pretty sure large institutions are running what-if scenarios like this and doing all kind of financial modeling. Sharks are circling the blood. These institutions are going to demand very favorable terms to fund and buy LC loans. LC may not have more than a Quarter or two to get the ship upright.