Alt Lending Week Ending 21st August

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Here is our pick of the 3 most important Alt Lending news stories during the week:

1. Yield Starved Investors start to Rummage in triple C rated debt

Why this matters: This headline from the Financial Times comes as no surprise given the crazy state of the debt markets but it does raise a few questions as to the general health of the market. After all Triple C is a pretty risky pond in which to swim and picking winners and losers post Covid is not going to be particularly easy given the whole gamut of new uncertainties that have come on the scene during the lockdowns and disruptions that the pandemic has caused. This however applies to both large highly rated companies as well as those whose fortunes are less favourable. It seems that this situation has arisen largely because of the FED announcing that it would start buying corporate bonds artificially boosting the creditworthiness of the whole corporate sector. But these days perceived quality is so important that yields at the top end have decreased just as the underlying risks have increased across the spectrum. Is this how markets are supposed to operate? It could be argued that the contraction of bond yield at the lower end of the markets is somewhat less than the decline at the top end but this does not make these instruments any less risky. The search for yield is only natural but the whole corporate sector has baggage now. The double B rated Ball Corporation $ 1.3 billion 10 year offering on a coupon of 2.9% must have raised a few eyebrows but it goes to show that there is increased appetite at the top of the junk pile. More importantly it should show that debt finance on a well defined project basis that comes without baggage might now be more tenable.

 

2. FCA warns against repossessions during Covid crisis

Why this matters: I have commented before on the potential frailty in asset values and this piece just demonstrates the scale of the problem. Naturally the FCA wants lenders to treat houseowners fairly when they have been caught in a situation which they did not cause and arguably has been caused by the governments own actions. Nevertheless the sheer numbers involved are massive and to an old cynic like me looks like we are building up problems in the future by not lancing this particular boil in the UK. While house prices have been pretty robust over the last few weeks  the mood music would suggest that a fairly sizeable downward correction is on the way. What is, to my mind, surprising is the different ways lenders are reacting. Generally speaking the larger lenders such as the clearing banks and building societies are becoming ultra cautious in terms of their lending policies. The same cannot be said of the newcomers in the Alt Lending space who see this as an opportunity to build market share. I include in this the new digital banks who are catering for small and medium sized business. Many of these lenders will have taken property as security and I would have thought that a degree of transparency into the assumptions contained in their lending policies might be appropriate. I also wonder what the regulators might come up with next.  I have commented on this before and still believe that our old friend prudence might be the watchword.

3. Alt Lending through Coin based Instruments

Why this matters: Last week I received a press release from a London based broker concerning a coin based offering to finance a gold mine in the Philippines. Given the current price of gold $ 2,003 per ounce and its strong performance over the past six months I thought I would take a closer look. On the face of it I was particularly interested in why this was being structured as an ICO in the first place. I mentioned last week that this was keeping things quite simple. The homework had been done the geological surveys had identified sufficient recoverable reserves and a pilot mine had already been established and proven. What was needed now was the capital to commence commercial production. The key numbers all add up and at far lower prices than we currently see today. It has been put together by professionals in their field and can satisfy producer and investor interest with quite bit left over. The Philippines government has contracted to buy all of the output and the coin holders will have the security benefits of a trust deed which gives them control of the assets if there are problems. Having said this it is alluvial gold being quite near the surface and comparatively easy to extract. If there is a problem however it is because the project is too small. The raise is a $ 15 million private placement which is the forgotten sector of the market place in these days of QE. Nevertheless it looks like a great project which is certainly worth closer inspection. Charles Street Securities is the London based funding advisor.

Howard Tolman is a well-known banker, technologist and entrepreneur in London,

We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information.

For context on Alt Lending please read the Interview with Howard Tolman about the future of Alt Lending and read articles tagged Alt Lending in our archives.

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