Daily News Digest Featured News

July 6th 2016, Daily News Digest

News Comments

  • We believe that today we finally fixed the hyperlinks for the pictures in the analysis and events section of the daily newsletter. We apologize it took us so long to fix them.
  • We also believe the hyperlinks to the articles in the “News Summar” section of the newsletter are also working. We have tested on all our devices, OSs and email clients we own but our tests are still limited. We would like to kindly ask our readers to report if you have any particular problems reading Lending Times in your favorite environment and we will continue improving in all ways possible. 

United States

  • Debt-to-EBITDA multiples for private equity deals with U.S. targets in 2016 has hit a whopping 6.8x. Are US companies over-leveraged ?
  • After testing the waters with Lendio,(as seen in our article here), AmEx is jumping both feet in with the poorly named “Working Capital Terms” venture. Why not name it AmEx Small Business Loans? In all cases, the SME lending space is heating up with a gorilla-size new entrant.
  • As our readers build origination platforms or lend on p2p platforms, perhaps a scenario they are not setup to handle yet is how to face low-probability-events. Such an example is “what happens in case of death of a lender”. An article surveying a few answers from different platforms.
  • Avant, while downsizing, does offer a buyout to all employees. Readers may want to understand this offer through the example of Zenefit’s down round at $2bil valuation and implications for Zenefits employees.
  • Blackmoon, helping balance sheet lenders to sell whole loans, is entering the US market with a New York office. Our previous article on the company can be found here.

United Kingdom

  • UK Banks expected to lend £150bn , freed by Bank of England’s capital buffer rules relaxation. Since 2008 we have seen that making cheap capital available to banks has not correlated with higher bank loan origination volumes. Is, this time, different ?
  • Interesting discussion of different choices fund managers can make in the search for yield and the advantages of p2p fund’s yields.

Hong Kong

  • LendIt rebrands  “largest conference series dedicated to connecting the global fintech community” from ” largest online lending conference”.

France

  • A great survey of the French p2p market with company names and differences (“prets participatifs” in French).

China

  • Cai Jincong, the founder of Zhejiang Yinfang Investment, was sentenced to life behind bars for running a fake peer-to-peer lending scheme that conned over 88 million yuan (about 13 million U.S. dollars) from 1,200 investors.

 

United States

Pitchbook reports that debt-to-EBITDA multiples for private equity deals with U.S. targets in 2016 has hit a whopping 6.8x, (Term Sheet), Rated: AAA

S&P LDC reports a global average of 5.36x for Q1 2016,  although the figure did top 6x in the third quarters of both 2015 and 2014. Moreover, S&P LDC data shows that large-market deals typically have higher leverage ratios than do mid-market deals, with the Q1 16 large-market figure hitting 5.6x (and, remember, that’s a mean, not a median).

It has been more than three years since the Federal Reserve and FDIC issued leveraged loan guidance to banks, suggesting that any debt-to-EBITDA ratios in excess of 6x (for most industries) is too high. Or, put another way, both lenders and private equity firms are regularly ignoring the Fed’s guidance — and appear to be easily getting away with it (likely because no individual deal is likely to present a systemic risk, and loan syndication makes the “baskets” more like a sieve).

AmEx Challenges Square, On Deck With Online Loan Marketplace, (Bloomberg), Rated: AAA

AmEx’s venture, Working Capital Terms, will approve loans in minutes for existing small-business cardholders, who can use the money to pay vendors. Debts may range from $1,000 to $750,000 with fees of 0.5 percent for a 30-day loan to 1.5 percent for a 90-day loan. AmEx will deposit funds directly into vendors’ accounts in as soon as two days.

AmEx has been looking for new streams of revenue to rejuvenate earnings after deciding last year to part ways with its biggest co-brand partner, Costco Wholesale Corp. In addition to its new in-house loan product, the card issuer offers longer-term small-business loans — ranging from $35,000 to $2 million — through its partnership with Lendio, another online marketplace.

“AmEx can do this because they have good credit knowledge,” said Karen Mills, former head of the Small Business Administration, who’s now a paid adviser for Working Capital Terms. “This will challenge the online competitors, whether or not they respond.” Amex declined to disclose their target for Working Capital Terms’ loan volume.

Working Capital Terms represents “a new type of product for American Express that could eliminate the need for the very expensive, unsustainable products from Square and other online lenders,” said Gil Luria, an analyst at Wedbush Securities Inc.

AmEx isn’t the only big lender pushing into the fray. Wells Fargo & Co., the third-biggest U.S. bank by assets, said in May it was starting a program to offer small businesses online loans in as soon as one day. Larger rival JPMorgan Chase & Co. is collaboratingwith On Deck to speed up the process of providing loans to some of the bank’s 4 million small-business customers.

AmEx shares fell 2.7 percent to $59.08 at 2:46 p.m. in New York. On Deck tumbled 6.9 percent to $4.89, while Square declined 3.6 percent to $8.94. Representatives from On Deck and Square declined to comment.

In the Case of Death, (p2p-banking.com), Rated: AAA

‘What happens when I die’ is a concern occasionaly voiced by investors. Investments in p2p lending will be inherited like any other assets.

Luke O’Mahoney of Ratesetter explained: ‘If an investor dies, we work with the next of kin to establish how they would like the account to be dealt with. Generally they would either use our Sellout function (effectively liquidating their investment) or they would allow the account to run down over time – of course we assist the next of kin or executor with this process’.

Only Assetz Capital mentioned that they have a process to do regular checks on dormant accounts that are in funds to ensure that lenders are aware of those funds.

Personally I wonder, if it would be good practise for marketplaces to contact those investors that have not logged in for a very long period (2 years?) and ask them to update/verifying their data. Failure to do so could then trigger a letter with the same request via postal mail.

Sign of the Times: Avant Offers Buyouts to All Employees, (Crowdfund Insider), Rated: A

Avant, an online lender, has offered the option for buyouts to all 760 of the company’s employees. It was not clear how many Avant employees would accept the offer. The news is a painful reminder that online lending is still struggling to regain its footing following indications of a slowing economy and the unexpected departure of former Lending Club CEO Renaud Laplanche – a now tarnished industry icon.

Russian Lending Marketplace Expands to U.S. in Search of Growth, ( Bloomberg), Rated: A

Blackmoon, a Russian financial technology startup that screens and prices loans issued by others to sell on to investors in a marketplace, is opening a U.S. office to expand in the world’s biggest market for non-bank lending.

Blackmoon is partly counting on an expansion into the U.S. from its new New York base to reach a goal of $1 billion in cumulative loans by the end of next year.

To achieve that, the company will target all kinds of unsecured credit in the largest market for alternative lending: consumer, small-business, student and car loans. Blackmoon currently works with several dozen European online lenders, from Finland to the Czech Republic.

Blackmoon functions as an intermediary between institutional debt investors and lenders — both alternative providers and traditional banks — allowing them to scale their business without additional leverage, while mitigating the risks of default.

Moscow-based Target Asset Management agreed in February to form a $100 millionfund to invest in Blackmoon’s loans.

 

United Kingdom

Carney frees up £150bn in bank lending, (Alt Fi News), Rated: AAA

Mark Carney, Governor of the Bank of England, yesterday took steps to reduce capital buffers for UK banks. The Financial Policy Committee (FPC) has reduced the UK countercyclical buffer rate from 0.5% of the banks’ UK exposures to 0%, with immediate effect. The FPC began to supplement regulatory capital buffers with the UK countercyclical buffer in March of this year, and had intended to increase the buffer to 1% in due course. But now the countercyclical buffer is expected to remain at 0% until at least June 2017.

This reduction is expected to free up £5.7bn in bank lending. The banking sector, in aggregate, targets a leverage ratio of 4%. This means that the £5.7bn in spare capital will allow the banks up to an extra £150bn in lending to UK households and businesses.

While the FPC’s actions would appear to be good news for UK borrowers, they may well herald a more competitive stretch for alternative lending platforms.

Peer-to-peer investing website holding cash of 900 savers goes bust, (This is Money), Rated: A

Comment: this is old news, but a good reminder for people who did not read last week’s Lending Times.

Savers were lured into Funding Knight with promises of returns of up to 8 per cent for lending their cash to small businesses. Last week, the peer-to-peer firm was rescued by investment firm GLI Finance, whose bosses said customers’ money was safe and that they could withdraw it whenever they liked.

Will Neil Woodford’s new higher income fund hold P2P to boost its dividends?, (Alt Fi News), Rated: A

Star fund-manager Neil Woodford is mulling the launch of a new equity income fund that will aim to deliver a higher yield than is currently offered by his hugely popular £8.6bn CF Woodford Equity Income fund.  A 4.5 per cent target yield has been widely reported. Higher yielding equity income portfolios offering an ‘enhanced income’ mostly use call options alongside normal income stocks to boost income pay-outs.

Woodford is bullish on P2P/marketplace lending and has invested in the two specialist investment trusts P2P Global Investments and VPC Speciality Lending – which offer attractive yields of 6 per cent and over for his income fund. He also owns an unquoted positon in P2P platform RateSetter.

The manager currently has 0.96 per cent of his fund’s assets in the P2P Global Investments trust and 0.64 per cent in VPC Speciality Lending trust. These are, respectively, his 28th and 39th largest holdings.  In total he has 109 holdings.

His existing fund is currently hitting a yield of 3.7 per cent. P2P GI and VPC Speciality Lending’s yields are currently a whopping 7.4 per cent and 9.7 per cent, respectively. However, that is partly a function of thier near 20 per cent discounts at present.

LendInvest boosts tech offering with VP of Engineering, (Financial Reporter), Rated: A

Comment: I find surprising that a company of the size and volume of Lend Invest did not, apparently, have a person in charge of technology, until now.

LendInvest has recruited its first VP of Engineering as it continues to drive its technology strategy.

Mike Nuttall joins LendInvest with over 15 years’ senior management experience and has led technology development for companies in sectors such as e-commerce, payments and gaming.

At LendInvest, Mike will be responsible for managing the direction, goals and efficiency of the technology team which now represents over 40% of LendInvest’s workforce.

Free tool launched to help low-carbon businesses source funding, (Startups), Rated: B

Business in the low-carbon, clean technology (cleantech), and sustainability sectors looking for finance can take advantage of a new digital tool launched this week.

Created by Shell Springboard, the Access to Finance Navigator is an interactive database where eco-friendly entrepreneurs can search for funding opportunities and filter funding sources by their location, stage of development, financial requirements, and the user’s business sector.

So far, the database features 84 low-carbon funding sources – said to represent a total value of £157m – from government organisations, angel investors and syndicates, crowdfunding platforms and venture capital (VC) funds.

Sources listed include Funding Circle (crowdfunding), Advantage Business Circle (angel), EcoMachines Ventures (VC), Horizon 2020 (government grants), and funding competitions ran by Innovate UK.

 

Hong Kong

LendIt and AMTD Group Co-Host the First Global Fintech Investment Summit in Hong Kong, (Press Release), Rated: B

AMTD Group Company Limited (“AMTD Group”, “the Group”) is a non-bank financial services group based in Hong Kong offering a wide spectrum of capital markets, asset management, insurance brokerage and risk management solutions to clients across Asia.

LendIt is the largest conference series dedicated to connecting the global fintech community.

LendIt China and AMTD Group will co-host the first Global Fintech Investment Summit in Hong Kong (“Global Fintech HK Summit” or the “summit”) on July 13.

More than 80 leading Asian investors and over 35 international fintech companies are expected to attend the ground-breaking summit.

 

France

The Vibrant Marketplace Lending Industry in France, (Lend Academy), Rated: AAA

The French marketplace lending industry is still in its infancy. Due to a very strict regulatory structure there is only one online consumer lender operating in France, Younited Credit (formerly Pret d’Union) and small business lending platforms have only begun operating in the last 18 months. In late 2014 the French government made it legal to make loans to small businesses without a banking license. This has led to a large number of new platforms, they say the count is around 50, to launch since then.

The French government is also actively involved in the industry through an entity called BPI – setup with similar goals to the British Business Bank. It wants to stimulate lending to small businesses. BPI will take small equity positions in fintech companies, it will invest on platforms and it will make interest free loans to qualifying companies.

Younited is still relatively small compared to the US or UK platforms – they are currently issuing around €17 million in new loans every month in France. With 130 employees they are easily the largest platform in France and one of the largest in Continental Europe.

Earlier this year Younited opened an office in Rome in their first international expansion. One of the great benefits of being part of the European Union is that they can “passport” their banking license to other countries which is what they have done in Italy.

Younited is focused on prime borrowers in both France and Italy offering competitive interest rates to banks. They offer four funds for investors with historical returns ranging from 2.2% for their lowest risk borrowers up to 5.1% for the highest risk fund.

The first online small business lender to launch in France was Unilend – they issued their first loan in November of 2013 a full year before the regulation changed to allow small business lending. The reason is that their loans are setup differently – as a direct contract between the borrower and the investors. They are actually an IOU instead of an actual loan.

Unilend has issued €20 million in loans to date and are currently issuing around €1 million a month. Loan terms range from 3 months to 60 months with interest rates of 4% to 10%. They run a Dutch auction, which allows investors to bid down the rates to a minimum set by Unilend. They have a large investor base of over 10,000 active investors with an average return of 5.25%. They average 700 investors per loan.

BPI has invested in Unilend as an equity holder – they do not own loans. Like every small business platform we met with the loans issued by Unilend are unsecured with no personal guarantees in place. The average loan size is €75,000 with the typical small business doing revenue below €2 million.

One of the curious things about France is that many of these loans are done in partnerships with banks. The small business might be seeking €500,000 in funding but the bank will only issue €400,000. So, they will seek the other €100,000 from a platform like Unilend.

Lendix is a relatively new small business platform, having issued their first loan in April 2015 but they are already one of the leading platforms in France. They currently originate €4 million a month, making them the largest small business lender.

The co-founders of Lendix have all invested their own personal money in the fund which has grown to €29 million in size and is currently yielding 6.5%. They are about to launch a second fund which will be in the €50-70 million range.

As for the loans the average size is €200,000 with a maximum amount of €2 million. The loan terms range from 18 months to 5 years although they have just added short term loan options down to 3 months. They currently have zero defaults although there was one case of fraud where they were able to get the money back.

Finexkap has taken a completely different approach to financing French small businesses. They are providing working capital via receivables financing. But the regulators do not allow invoice financing outside of banks unless it is done in a securitization.

They did €15 million in originations in 2015 and are on track to do €100 million in 2016. Because this is invoice finance the loans are very short in duration. So, even though they have only been issuing loans for a couple of years they have already had 9 turns of their loan book. Of the more than 5,000 transactions they have done they have only had losses on one transaction. So they are developing a solid track record.

The company with the most memorable domain name is Credit.fr. They are part of the new breed of platforms focused on small business loans. They are growing fast and have just crossed €1 million in loans per month issued.

They are open to individual and institutional investors and they have 5,000 registered investors on their platform today. Like Lendix they are also creating a debt fund that they expect to launch in September and that should help them reach scale much faster. The target return for this fund will be around 5% after fees.

Credit.fr has a solid borrower funnel with leads coming from digital, partnerships with companies like Younited and others and also business brokers. The average loan size is €60,000. They feel that their competitive advantage is their risk management where they have an experienced team in place.

Lendopolis is one of the more unique platforms in France. It is actually part of theKissKissBankBank (yes, that is the official name) group of companies that consists of three divisions:

  1. KissKissBankBank – a donation-based crowdfunding site created in a similar vein to Kickstarter focused on primarily cultural and artistic projects. They have financed 15,000 projects since being founded in 2009.
  2. Hellomerci.com – based on the Kiva model of microfinance. These are small loans (less than €10,000) at 0% interest rates loaned out to very small companies.
  3. Lendopolis – launched in 2014 as a more typical p2p small business lender. They have loaned €7 million over 100 loans in their first 18 months.

Like many platforms here Lendosphere also launched soon after the regulations came into effect in late 2014. They are the first platform to be 100% focused on sustainable development projects.

To date they have loaned €6.7 million across 33 projects – either wind turbines or solar panels. The loans are typically 2-5 years at interest rates of 4-8%. They have 3,500 registered investors funding these projects. While it is still a young loan book Lendosphere has had zero defaults and delinquencies.

Most platforms are focused on small business where there has been a lot of entrepreneurial activity in the last 18 months. The French government recognizes that small businesses need more choices when it comes to access to capital so they have helped to create a regulatory environment that enables new approaches to this challenge.

 

China

Lending scheme fraudster jailed for life, (CRI English), Rated: A

A court in east China’s Zhejiang Province has sentenced a man to life behind bars for running a fake peer-to-peer lending scheme that conned over 88 million yuan (about 13 million U.S. dollars) from 1,200 investors.

Cai Jincong illegally raised more than 200 million yuan through Zhejiang Yinfang Investment and Management Co., where Cai fabricated investment products promising over 20 percent in annualized returns, the court said on Tuesday.

Cai, who was under a lot of debt, founded the P2P lending platform in October 2013. It offered returns on investment of up to 50 percent.

The funds were used to service Cai’s own debt and fund the operation of the P2P platform. Cai turned himself to police on January 20, 2015.

Author:

George Popescu
George Popescu

About the author

George Popescu

Serial entrepreneur.

George sold and exited his most successful company, Boston Technologies (BT) group, in 2014. BT was a technology, market maker, high-frequency trading and inter-broker broker-dealer in the FX Spot, precious metals and CFDs space company. George was the Founder and CEO and he boot-strapped from $0 to a $20+ million in revenue without any equity investment. BT has been #1 fastest growing company in Boston in 2011 according to the Boston Business Journal and the only company being in top 10 fastest in 2012-13 as it was #5 in 2012. BT has been on the Inc. 500/5000 list of fastest growing companies in the US for 4 years in a row ( #143, #373, #897 and #1270). After the company sale in July 2014 until February 2015 George was Head-of-Strategy for Currency Mountain ( www.currencymountain.com ), a USD 100 million+ holding company focused on retail and medium institutional currencies, precious metals, stocks, fixed income and commodities businesses.

• Over the last 10 years, George founded 10 companies in online lending, craft beer brewery, exotic sports car rental space, hedge funds, peer-reviewed scientific journal ( Journal of Cellular and Molecular medicine…) and more. George advised 30+ early stage start-ups in different fields. George was also a mentor at MIT’s Venture Mentoring Services and Techstar Fintech in NY.

• Previously George obtained 3 Master's Degrees: a Master's of Science from MIT working on 3D printing, a Master’s in Electrical Engineering and Computer Science from Supelec, France and a Master's in Nanosciences from Paris XI University. Previously he worked as a visiting scientist at MIT in Bio-engineering for 2 years. George had 3 undergrad majors: Maths, Physics and Chemistry. His scientific career led to about 10 publications and patents.

• On the business side, Boston Business Journal has named me in the top 40 under 40 in 2012 in recognition of his business achievements.

• George is originally from Romania and grew up in Paris, France.

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