How Much Money Could Investors Get Back from LCF Bonds?

A lot of investors (aka bondholders) in London Capital and Finance (LCF) are asking the valid question - how much money am I likely to get back from my LCF bonds?

In this kind of situation the return to investors is normally quoted as pence in the pound where 100 pence in the pound would be a return of your capital in full. 

It's obviously a very difficult question to answer as the administrators are only a week into their appointment and have been making some potentially very misleading statements which appear to be designed to appease investors and stop them getting in contact rather than actually giving information that may assist.

Bank Accounts

It has been claimed that £4 million was found in LCF bank accounts at the point they were frozen. If correct this is money that can be recovered for investors but as the most easily realised it is likely to be the first place where administrators get paid from.

However there is a lot of public information available on the loans that were made, some more accessible than others. There are 2 publicly quoted companies that have been lent money by LCF indirectly via another company called London Oil & Gas (LOG). These 2 companies are Independent Oil & Gas (IOG) and Atlantic Petroleum (AP). London Oil and Gas Ltd had agreed a loan of £50 million from London Capital and Finance and then agreed to loan this money out to IOG and AP.

https://www.share-talk.com/independent-oil-gas-loniog-update-on-london-oil-and-gas-loan-facilities/

Out of the £50 million from LCF, £38.55 million had been agreed to be lent to IOG. According to the terms reported above there is no mechanism by which this loan can be recalled early by LOG. But reading the accounts for LOG it shows that the loan from LCF is repayable on demand. How could LOG satisfy this requirement?

In addition it was confirmed that remaining sums are still available to be lent out to IOG and had not been requested by LCF as of 4 January. As this was prior to administration the situation may have changed but the loan terms may not allow early repayment requests.

According to LCF loans were only made to companies where there were sufficient assets so the loan was under 75% of the asset value.

With London Oil & Gas this clearly doesn't appear to be the case. LCF have loaned £50 million but the value of the company is only £19 million as of 2017 so the loan is over double the assets backing it.

The good news is that these are publicly quoted companies so we know that these loans are genuine and exist. 

However the bad news is that both Independent Oil & Gas (IOG) and Atlantic Petroleum (AP) are showing as being technically insolvent themselves as their liabilities exceed their assets so there may be potential for these loans to fail at some point. Further bad news is that these loans were not made directly by LCF so if the security taken by London Oil & Gas is worthless the loans will need to be written off.

As of 7 Feb 2019, Independent Oil & Gas has a market capitalisation of £16.02 million but loans outstanding of £30 million and made a loss of £2.5 million last year.

The IOG 2017 accounts have the following statement "There can be no certainty that additional funds will be forthcoming which indicates the existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern and therefore it may be unable to realise its assets and discharge its liabilities in the normal course of business"

That doesn't look good for LCF investors if the money from LOG dries up. Also the loan from LOG to Independent Oil and Gas was convertible which generally means no interest is due.

If no interest was being paid on the loan, how was interest being paid back to bondholders?

As these loans were the most visible and best option for recovery of bond monies by investors it isn't a promising situation for investors if even the best loans are in doubt.

Aside from the £50 million lent by LCF to London Oil and Gas the remaining loans look decidedly suspect. Out of 12 companies shown as owing money to LCF, 9 of them were less than a year old at the point of being loaned money by  London Capital and Finance and at least 2 have been shown to have never traded.

How Much Money Will Investors Get Back from LCF Bonds?

One example with CV Resorts Ltd looks to have a loan of £5.7 million from LCF but has not traded since 2014 and has not paid a penny of interest or capital back since the loan was made.

It would be hard to expect that non trading companies with no assets and that have made no interest or capital repayments for over 3 years are likely to be in a position to pay back loans.

Unfortunately looking at these numbers the outcome doesn't look promising for investors. It may be the case that if anything is received back via administration then it's likely to be a fraction of their investments.

This will not be happy reading for investors (bondholders) but this was always a very high risk product where there was a chance of losing 100% of your money. The real issue is with the way it was promoted to unsuitable savers when the bonds should only have been sold to high net worth investors or those who accepted it was less than 10% of their savings.

From the stories posted online by investors it's very clear that this was not the case with many people. It's hardly surprising with adverts like this: