Peer-to-peer firm RateSetter offers free sell-out to investors

RateSetter sheds light on the status of former wholesale lending partners, while offering all investors the chance to sell-out of their holdings.

RateSetter has offered all of its investors a “free sell-out” option, meaning that they can withdraw their cash from the platform without incurring any fees, provided that there is sufficient liquidity in the marketplace.

The offer was made via an email to investors today, signed by chief operating officer Peter Behrens (pictured), and will last for one month. It has been made in relation to RateSetter’s past wholesale lending activity, which it put a stop to in December of last year, shortly before the FCA moved to ban the practice across the industry.

RateSetter issued an update in early May, explaining that it had rejigged its relationships with several former wholesale lending partners. Today’s update offers further clarity on those changes, while also providing some new information.

The platform has directly intervened with three wholesale borrowers. The first is a company named Vehicle Trading Group Limited. RateSetter announced in May that it had bought the two operating subsidiaries of this company in order to protect its lenders’ interests. The platform intends to expand its motor finance lending capabilities using these assets. The two subsidiaries of Vehicle Trading Group Limited took loans of £24m and £12m from RateSetter, secured against a combined underlying loan portfolio of £31, which RateSetter believes will generate sufficient interest to repay the wholesale loans in full.

The second is an advertising company named Adpod Limited. In 2015, Vehicle Trading Group used the £12m in wholesale funds that it had borrowed from RateSetter to lend to Adpod, which is unusual given that Vehicle Trading Group is explicitly a motor finance company. RateSetter’s statement to investors says that Adpod was poorly managed and “got into financial difficulty”. Since lending so much to a single business fell outside of its credit policy, RateSetter opted to intervene and absorb any losses incurred from the loan, instead of having the provision fund do so.

“RateSetter is doing this by standing behind Adpod’s monthly loan repayments until the money is fully repaid,” wrote Behrens in the statement, adding that the amount outstanding is now £8.5m. Adpod is now fully owned by RateSetter.

Finally, there is George Banco Limited. In May we learnt that RateSetter had taken an equity stake in the guarantor lender and planned to allow its investors to lend directly to George Banco's borrowers. But it now transpires that RateSetter will not continue with this strategy. Meanwhile George Banco has existing loans with RateSetter of £32m, but RateSetter says that George Banco is repaying these “as its end borrowers repay in line with the loan schedules”.

The combination of these interventions is what has driven RateSetter’s offer of a sell-out. The offer has gone out to all investors. “As the Provision Fund effectively means that all lenders are exposed to the performance of the whole loan book, we are giving everyone, not just the lenders who are matched to these specific borrowers, the opportunity to review their investment,” explained Behrens.

It was also noted, however, that the expected default rate on outstanding lending is “unaffected” at 2.9 per cent, and that the firm currently deems the provision fund sufficient to cover all expected future losses.

In response to a query from AltFi, a RateSetter representative clarified that the sell-out offer was not mandated by the FCA, but added that the company had discussed communicating with investors with the regulator. He further added that the company wanted to provide a full update to lenders on its new relationships with former wholesale lending partners, giving them an opportunity to review their investments.