P2P Money Blog

 RateSetter has emailed all of their lenders concerning three borrowers.  We have redacted some of this information for confidentiality.

On 2 May 2017, we announced on our blog that we had changed our relationship with two of our borrowers.  We are writing to you today with more information about this and to let you know why RateSetter has intervened over and above the usual course of business with three of its borrowers.

Why is RateSetter providing this information?

We believe it is important for all our lenders to be comfortable with their investment and aware of the risks of investing with RateSetter on an ongoing basis. If you feel this information changes your investment, we are giving you the option to review your investment with us and sell out without incurring any fees. This offer is available to you for the next month.

RateSetter has intervened directly with three borrowers as follows.

• V****** T****** Group Limited, a motor finance holding company: this company went into administration because it had taken on too much debt.  RateSetter bought the two operating subsidiaries in order to best protect our lenders’ interests.  They are Vehicle Credit Limited (which makes loans to consumers to buy cars) and Vehicle Stocking Limited (which makes loans to motor dealerships to buy cars).  We intend to expand our motor finance lending capabilities by integrating the two businesses into RateSetter product lines, with lenders matched directly to the end borrowers.  The businesses are repaying their existing wholesale loans of £24m (VCL) and £12m (VSL) as their end borrowers repay in line with the loan schedules.  The loans are secured on the underlying loan portfolios of these two businesses which total £31m.  These portfolios are expected to generate sufficient interest throughout their lifetime to repay these wholesale loans in full.
• A**** Limited, an advertising company:  In 2015, V****** T****** Group used £12m of wholesale lending from RateSetter to lend to A**** Limited.  A**** was poorly managed and got into financial difficulty.  As lending this amount to a single business was outside RateSetter’s credit policy and was an exceptional case, we believed it was right for RateSetter as a company to intervene and absorb any losses from this loan, as opposed to the Provision Fund doing so.  RateSetter is doing this by standing behind A****’s monthly loan repayments until the money is fully repaid.  The amount outstanding is now £8.5m. A**** is now fully owned by RateSetter.
• G***** B**** Limited, a consumer guarantor loan specialist:  RateSetter obtained a minority equity share of this business, with the intention of changing the wholesale lending arrangement into one where RateSetter investors would lend directly to G***** B**** borrowers.  However, after further examination, we concluded that we would not continue with this strategy.  RateSetter will remain a supportive but passive shareholder in the business.  G***** B**** is repaying its existing loans of £32m as its end borrowers repay in line with the loan schedules.

These three interventions all stem from RateSetter’s wholesale lending which we discontinued in December 2016 and we do not intend to intervene like this again.  The expected default rate on RateSetter’s outstanding lending is unaffected and stands at 2.9 per cent, and currently we estimate that the Provision Fund is large enough to cover all Expected Future Losses.

The option to review your investment with a free sell-out

We are giving everyone, not just the lenders who are matched to these specific borrowers, the opportunity to review their investment, as all investors are exposed to the performance of the loan book as a whole.  The Provision Fund effectively spreads each lender’s risk across the whole loan book, you are exposed to the performance of the book as a whole - not that loan specifically.

If you would like to sell out of your investment with RateSetter without incurring a fee, please email us.  This offer will last for one month, from 18th July to 17th August 2017.  We would like to point out that sell-outs are always subject to there being other funds in the market to replace funds withdrawing from loan contracts.

RateSetter did have to because if they didn't the Provision Fund would have been able to cover this, but this would leave it so depleated that it would be unable to cover other expected defaults.  The reaction on the P2P Independent Forum was of some concern, with some lenders expressing their wish to exit the market, but given the current oversupply, this could simply restore some of the balance between lenders and borrowers.