Asset-Backed P2P Leasing Platform Takes Flight

By AltFi on 14th August 2014

P2P/Marketplace Lending

There’s no slowing up in the emergence of bright new entrants into the world of peer-to-peer lending.

Asset-Backed P2P Leasing Platform Takes Flight

Ablrate is the latest P2P platform to appear within the UK space. The platform will specialize in providing asset-backed leasing deals to its investors. The first deal listed on the platform is for an ATR-42 turbopop aircraft which is being leased to a government airline. This kind of offering represents uncharted territory for the P2P sector, and the platform has big plans to branch out into various other types of asset-backed leasing. AltFi caught up with Ablrate Founder and CEO, David Bradley-Ward, for an extended look at the platform.

Could you briefly introduce yourself and the platform for us?

The Ablrate platform was developed for the leasing industry where an asset is behind every transaction. These loans will be in capital equipment and aircraft initially. Our management team has considerable experience in these types of transactions having written numerous leases for capital equipment and having completed over 360 aircraft transactions.

Can you explain a bit about your background?

I have a passion for aircraft and remember being very moved by the Falklands war, as many of my peers were in the early eighties, so straight out of school I decided to join the Royal Air Force as an engineer. I looked upon it as a great career and as a fabulous adventure, and it certainly was!

I studied business and left to pursue a career in financial services. To cut a long story short I ended up running the UK arm of a physical commodities trading business for a number of years. I sold that business to the US company parent and entered the corporate finance market. It was at this time that I developed an interest for technology.

We had developed one of the very first online trading platforms for the commodities business, but the cost of connection and data was horrendous in the late 90’s, so we shelved that, but the concept of online platforms fascinated me. In the early 2000’s I developed the idea for an auction based IPO system that essentially was a crowd funding platform, sadly I never made the small leap it would have taken for it to become Lending Club or Zopa!

The seed was sowed, however, and when I was given the opportunity, a number of years ago, to join my financial interests with my passion for aircraft in the aircraft leasing market, such a platform was always at the back of my mind.

In this company we develop financing structures and presented to family offices and HNWI on the merits of aircraft investment, but there was always the opportunity to do more if we could attract the mezzanine level of finance that lessors so often need to get a deal done.

When we thought things through and saw that we could launch our own platform to service this very lucrative space we grabbed it with both hands. I guess you could say that Ablrate may only have been live for a short time, but it has been 15 years in the making!

You've launched the platform with an aircraft asset backed deal - why should investors be excited by this particular opportunity?

Aircraft are an evocative asset, even the most uninterested person cannot fail to be impressed at the beauty of some aircraft and the phenomenal sophistication of the engineering behind them. However, what the average investor generally doesn’t know (and in many cases, the institutional investors) is that aircraft are, historically, a good investment when looked at on a risk adjusted returns basis (Ascend Worldwide have done a very good study of this in their Aircraft Investment Index paper).

Many people’s concern is that the airline industry is very cyclical, and while this is an accurate assessment there is a big difference between the airline industry and the aircraft industry. Of course there is a certain symbiosis between the two but they are distinct.

Richard Branson is reported to have said the “..best way to become a millionaire is to start as a billionaire and buy an airline”. This one saying has lodged itself in the minds of some investors and as such there are those who don’t like the sector and that is understandable. The business that our borrowers are in, however, is the aircraft leasing business. It is providing the metal for these airlines to fly their passengers around, and if it doesn’t work out for one airline, the aircraft is taken back and leased to another airline.

Repossessions are actually rare in our sector, but in its crudest form that is the airline leasing industry and it works, that is why over 40% of aircraft in the skies are leased and why over 50% of new aircraft orders are for aircraft leasing businesses.

As an investor the only way, until now, to get involved with transactions such as these was to invest in aircraft leasing companies’ equity, or find a fund that invests in aircraft leasing. There has been no way to gain direct exposure to the sector until the arrival of Ablrate.

The reason that people should be excited about these transactions is the quality of the loans. In the one we have listed the borrower has £750,000 of their own money in the deal, a top European bank has loaned over £3.5 million, the due diligence bill for the lawyers was in the six figures and the lessee is a government owned airline. When it comes to the stability of a loan, we think that is pretty good compared to some offerings in the peer lending space.

Lending into this opportunity would give you 10% for six years which would provide a boost for any lender’s portfolio, we believe. There is, of course the opportunity to shorten that term by selling units on the secondary market as that develops on Ablrate.

Will you be branching out into other kinds of asset-backed deals?

Yes, most certainly. The way the platform is designed is that we can launch different categories as and when we move into those areas. The data input changes for the borrower to tailor it to the specific category. As long as there is an asset backed nature to the transaction, it is of high quality (as an asset and those involved in the transaction) and pays the right return to lenders, we will be happy to approve it and present it to lenders for their evaluation.

Is Ablrate the only platform providing asset backed leasing through P2P lending?

There are other asset backed platforms who do a great job in their niche and have developed quickly. It seems that property is the one asset most platforms are focused on in our space which is working for them, we aim to provide an alternative asset class for investors to consider. There is much talk about diversifying across loans, but it would also make sense for investors to diversify across platforms and assets also, we provide that opportunity.

What's compelling about these kinds of deals?

In the wider peer-to-business context, there is the element of banks making things tough for borrowers. I used to be able to have a chat over coffee with my bank manager, now I am lucky to get to speak with a human in less than 20 minutes. I am sounding old here, but in the old days you could sit down with the bank, tell your story and someone would be able to make a commercial decision based on your history with the bank, personal knowledge of the banks’ staff and the merits of your proposal. That has changed to a computer and credit score based model with virtually no weight put on the commercial merits of the transaction.

Consequently business people just don’t have the time to deal with the banks because the general perception is that even if they do invest the time and jump the hurdles that the banks put up, there is a good chance they won’t get the money they want anyway.

Peer lending has provided a new solution to this challenge. A business gets an opportunity to tell a story and lenders get to act like the old bank managers did, they are prepared to take a chance and back a business they feel has the integrity and business model to make sure they get paid back.

From Ablrate’s perspective, our borrowers have relationships with banks who fund their transactions, but to a lower loan to value than has been available in the past. Each lessor will have a certain level of equity they are applying to the deals that they do and the more equity they have to put into each deal means they can do less deals. With Ablrate lenders being able to step in and provide a mezzanine level of finance, or in layman’s terms a ‘top up’ of the deposit required to make a transaction happen, it allows borrowers to do more deals. Consequently this mezzanine level of finance becomes an important part of a transaction and carries a ‘deal premium’ where the interest rate being offered to lenders is probably more than the credit risk that a lender is taking. This is why here at Ablrate, we think we have some very good risk adjusted investments for lenders.

There is, of course, a symbiosis occurring here; investors want better returns and borrowers need access to capital. Peer lending facilitates this and, as we have coined in our tag line, it is a great time for lenders to ‘Unbank your investments’. What we mean by that is that the banks are not giving great returns, so why not try something else? The risks are different of course, but it is a new opportunity to enhance your portfolio of investments if you evaluate the loans and can accept the risk.

What is the peer-to-peer lending element adding to your business? Why did you feel compelled to enter the space?

We looked at other platforms to provide the mezz level of funding we needed and they are just not geared up to provide what we need. It made sense, therefore, to take our experience in the finance industry and the technology industry and combine the two to create a platform such as Ablrate that we believe has a compelling story.

The idea came about when we were tasked to look for funding on an aircraft that was being bought from a Polynesian airline and leased to a Latin American airline. A deposit of £750,000 was available from Phoenix Aircraft Leasing (our aircraft transaction sponsor) and we had a major European bank willing to do the financing, what we needed was the mezz finance. Having looked at peer lending platforms to provide this and finding the platforms were not geared up for such a deal, we came to an arrangement with the bank to provide that mezz level. They charged quite a fee for that and we realised that we could have given a very good return to an investor on that level of finance and still done better than the deal we were being offered by the bank.

Basically, that is when we got thinking and Ablrate was conceived.

Supposedly Ablrate already boasts a deal pipeline of around £50 million - where do you see yourself in a year's time?

Many of the platforms that have been created have been developed by people who are already in an industry, be it property or invoice financing etc. These platforms will have a steady deal flow and I think if a new platform starts without this existing transaction deal flow it will difficult to get a foothold.

We are no different in that respect, but where we are different is that our transaction size can be tailored to the amount of money that our lenders are willing to place through Ablrate. We could get to around ten million per month before we would start to worry about loans not being available for lenders however, by the time we get to that level we are confident that we would be able to increase deal flow even more. Allocation of large amounts of capital is not a problem in the asset finance industry, especially in aircraft, and our team has the expertise to manage and attract this deal flow.

Where we would like to be in a year’s time is to have a loyal lending base that have had a great experience of our platform and have recognised the quality of the transactions we allow on Ablrate. In terms of numbers our projections call for £20 million in loans placed by the end of 2015, which in the context of how the industry is growing, and our potential pipeline, may not seem a lofty goal, however, we are in it for the long term and feel that we should manage our growth and make sure that every loan on the platform is quality.

The bottom line is that we have a responsibility to our lenders to make sure we provide quality loans with quality security and great returns, if we do that then the numbers will take care of themselves.

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