BusinessWell

P2P and Private Debt Investment- Case Study

Tom Malley FCCATom Malley FCCA

Tom Malley FCCA

Contents

    Reading this will be the EASIEST and QUICKEST win debt investors will ever see.

    I'll show you how combining information from two publically available sources can help you.

    I'm using a real-world example. If you've ever fancied yourself as a detective, join along by clicking the links.

    Information Source 1- Archover Business Lending

    ArchOver is a P2P business lending platform. Per their website, they state the below.

    Click here for link

    Information Source 2- UK Exim Finance Ltd (Co No 08143983)

    One of their 2018 defaulted borrowers is UK Exim Finance Ltd. That's hard to find unless you've got software like mine.

    Here's what the insolvency practitioner had to say.

    "As at the date of our appointment, the Company's total aggregate indebtedness to ArchOver was £4.74M. Interest and charges continue to accrue on their debt unless and until paid in full. Based upon current estimates of anticipated realisations in the Administration, ArchOver will suffer a substantial shortfall in the recovery of the debt due from the Company".

    Page 10, section 5 'estimated outcome for creditors' in Liquidators' statement of receipts and payments to 22 July 2021.

    Click here for link

    Can you spot the banana skin?

    We're just looking at one defaulted borrower from 2018. Their debt of £4.74M makes up the majority of the £5.72M listed as "amount in recovery" by ArchOver for 2018.

    One VITAL piece of information is missing from the defaults table. ArchOver doesn't indicate what losses are EXPECTED to amount to.

    Read the insolvency practitioners quote and check the defaults table for 2018 again.

    Misleading?

    I think there's an opportunity for investors to address asymmetry of information themselves.

    As an investor, being cynical about how things are categorised and asking the right questions could make a massive difference.

    I am critical of the binary categorisation of "amount in recovery" and "actual losses for year". Both do nothing to aid investment decisioning because they DO NOT indicate what losses are EXPECTED to be.

    Accountants will be well aware of the accruals principle. That applies equally from an investment perspective.

    Get Answers to the Right Questions

    Answers to these two questions would contribute to an investor making an informed decision.

    1. What are the "EXPECTED LOSSES" for each year?
    2. What has ArchOver COMMUNICATED to investors for the "amounts in recovery"?

    Expected Losses

    You're ENTITLED to ask anything you want. It's your MONEY. You're the VALUE.

    If you think you'll make a better decision with an additional column titled "expected losses for year", ask the management to provide it. They'll have communications with the insolvency practitioners. As you've seen in the example of UK Exim Finance Ltd, some of the information is publically available anyway. You just need to know how to find it.

    Existing Investor Communications

    What is ArchOver saying to investors in the defaulted UK Exim Finance loan?

    • Are they warning of losses?
    • Are they saying they expect to make a full recovery?
    • Are they saying the owner of Archover will cover the bad debt?

    You can use this to corroborate what they're telling you about expected losses. The story should be the same.

    Conclusion

    Ask the RIGHT questions and always DYOR!

    How BorrowingWell can help

    BorrowingWell is pivoting to provide investment market intelligence.

    My business partner and I spent most of the last eighteen months creating software that analyses publically available data on UK businesses.

    If you're an HNWI or you represent a family office please get in touch.