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Digging Into the iwoca Bond Issue

This week on CrowdView we’re abstaining from our usual look at the go-go world of crowdfunding equity based campaigns and focusing instead on the loans space – or should we say bonds space! We’ve already registered our concerns about many mini-bond issues although we must also admit to having a soft spot for the more rigorous structures used by the UK Bond Network (who bridle at the use of mini bonds to describe their offering). Their issues strike us as better value for money with investor friendly frameworks you’d expect from a platform trying to entice both sophisticated and institutional investor cash.

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Their latest offering – closing soon, so hurry – strikes us as a particularly innovative deal in that it’s actually working with another alternative finance platform called iwoca. According to the inevitable marketing blurb that accompanies any bond offer iwoca is “iwoca is transforming small business lending by offering flexible credit facilities to the millions of SMEs that are under-served by banks. Its technology driven risk platform draws on thousands of data points to make faster, fairer credit decisions, allowing iwoca to lend small businesses up to $150,000 within hours. With 7,500 transactions since its launch in 2012, iwoca is one of the fastest growing business credit providers in Europe. iwoca operates across the UK, Germany, Spain and Poland. “

What we can say is that iwoca is a smart outfit that’s developed innovative products for those businesses looking access to shorter term capital, pronto! But in order to satisfy the instable demand from SMEs the platform needs capital. Now, iwoca isn’t short of a few pence having just raised $20m in equity capital a few weeks back (led by German VC firm Acton Capital Partners ), which is in turn being used to fund $150m across European markets. But iwoca clearly needs some additional capital and has decided to borrow an additional £9m via a 1 year bond on the UK Bond Network with a coupon of 9%. 

The original AltFi News story can be found here at -

AltFi News reports that the “ £1m bond will pay 9% gross per annum on a quarterly basis, over a 360 day term. Principal repayment will occur at maturity. The iwoca bond is secured against a pool of the platform’s loans, which must be maintained at a certain level (in terms of performing loans within the pool) in order to provide the agreed to level of coverage”. The £1m auction started last week and will close fairly soon.

We’ve not looked in enormous detail at the underlying structure yet investors do have access to that collateralised pool of short term loans, and there is also a guarantee from the topco parent company which in turn has investors with very deep pockets. Crucially you don’t have to take any underlying cashflow risk from those loans – the money is owed to bond holders by iwoca, and the return is not dependent on those short term loans by iwoca. UK Bonds Network also has sight and access to the bank account into which the underlying loans are being paid and in a worst case scenario could simply grab back control and seek repayment of the SME loans. In a sense the only obvious credit risk is with iwoca itself going bust. Given that very recent $20m injection we think that highly unlikely but of course not impossible given that the business is almost certainly loss making as it’s grow like gangbusters (though the loan book is, we understand, solidly profitable). 

The income payments are quarterly and the yield is 9% which we think is very reasonable for a one year duration and more than adequate compensation for the risks being taken. The last time we looked £420,000 had been bid of a total of £1m but we’d hope that iwoca maybe issues additional bonds in the future. Overall we think this looks a smart risk return trade-off for the more adventurous, sophisticated investor. 

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