LCF administrator confirms our findings

The administrators of London Capital and finance have issued an email to bondholders today that essentially confirms many of the findings that have been posted here and on the Bond review website.

They have stated that LCF paid £60 million to Surge financial as commission and given some calculations for the returns that would be required to recover that money which is up to 44% in a year in the case of 12 month bonds. I'd originally suggested £50 million as commission payments so this is a worse situation than the one I thought could be likely. If this money was paid out from the bonds then it wasn't available to lend out and earn a return so the loans had to work even harder.

They've also said that those returns are very unlikely.

The summary details from the letter to bondholders dated 21 Feb 2019 is as follows:

• There are 11605 bondholders who invested £236 million into bonds with London Capital & Finance. This gives an average amount each bondholder invested as £20,336 but it's clear from posts elsewhere that some were substantially higher than this.

• No loans to borrowers are expected to be repaid imminently

This raises the question of how bondholders would have been repaid if LCF hadn't gone into administration. How can repayments of capital be made if no loans are due to be repaid? Would new investor's money have been used?

• Borrowers may swap their loans for shares in their company - so bondholders would have a claim over those shares instead of the loans. 

I bet LCF bondholders weren't expecting to have their money swapped out for shares in tiny oil companies. I suspect that the reason many investors used LCF was because they (wrongly) thought the stock market was too risky and didn't want to own shares.

• Largest borrower had loans totalling £122 million

So one company had over 50% of the bondholders' money. This is an incredible admission and shows a complete lack of diversity in the lending process. If I invest in a FTSE 100 stock market fund then my money is spread across 100 different companies. LCF have put over half the money into ONE company. Again this blog had identified that there were a small number of borrowers and suggested that LCF had loaned £50 million to one company, that now is shown to be an underestimate.

• Administrators are still trying to work out the value of assets that have been pledged as security for loans. This obviously isn't an easy or straightforward process despite the LCF management's claims that the assets are worth much more than the loan value.