Prospective Investors should consider carefully the following risk factors in addition to the other information presented in the Base Prospectus. If any of the risks described below were to occur, it could have a material effect on the Issuer’s ability to fulfil its obligations under the Saxon Trust Secured Shield Bonds. The risks and uncertainties described below are the only known material risks but the Issuer may face other risks that may not be considered significant by the Issuer based upon information available to it at the date of this Base Prospectus or which it may not be able to anticipate and which may have a material adverse effect on the Issuer's ability to fulfil its obligations under the Saxon Trust Secured Shield Bonds. Any decision to invest in Saxon Trust Secured Shield Bonds should be based on consideration of the Prospectus as a whole. Reference to the "Issuer" is to Saxon Trust plc which is the company that issues the Saxon Trust Shield Bonds to the investors and who is responsible for repaying investors.
Risk factors relating to the Issuer
The third parties that borrow money from the Issuer may fail to pay loan interest or make repayments in respect of the loans and the loan security held may be insufficient to cover the loan and interest due from the borrower.
All of the Borrower Loans will constitute bridging finance, which are generally perceived as carrying a higher risk than standard mortgage lending. The Issuer will take certain steps to mitigate these risks. The Issuer takes security over assets held by the borrower in respect of any loans made. The Issuer will also follow its own credit procedures to mitigate such risks. These include ensuring that borrowers are able to repay the loan be assessing the viability of any proposals made by the borrowers and conducting credit assessments and affordability checks on the borrowers and their directors (further details can be found in Part Three). All loans made by the Issuer will be secured against the relevant property and/or against the borrower if this is a company (as applicable). In addition, where it is possible to put in place personal guarantees from the directors of a borrowing company, or a parent company guarantee, the Issuer will do so. The Issuer will use third party law firms to ensure that all security is properly executed and registered, thereby mitigating the risk of the failure of security in relation to a loan. By ensuring that each loan is made at a conservative loan to value of no greater than 60%,, this gives at least 40% protection against changes to property valuations at the point of making the loan. The intention is to target an average Borrower Loan to value across the portfolio of under 50% giving at least 50% protection against changes to property valuations at the point of making the Borrower Loan.
However, the Issuer is inherently exposed to risks arising from changes in credit quality and the recoverability of amounts due from third party borrowers. If the third parties that borrow money from the Issuer fail to repay the loans, or interest on those loans and the security held cannot be realised for sufficient amounts, the Issuer's ability to pay Interest and capital to Bondholders could be materially affected. Although the Issuer intends to make provision for bad debts, if the default exceeds expectations, this would impact on the Issuer's ability to pay Interest and/or capital to Bondholders.
The Issuer may become insolvent
Investors in Saxon Trust Secured Shield Bonds are lending money to Saxon Trust plc. Investors will not become shareholders or have any ownership stake in the Issuer. Instead, subject to the risks that are described here, Investors will receive Interest and, at the end of the term of each Saxon Trust Secured Shield Bond (when it matures), their initial investment amount back.
Investing in Saxon Trust Secured Shield Bonds involves the risk of the Issuer becoming insolvent. Like all businesses, the Issuer is vulnerable to financial difficulty and investing in Saxon Trust Secured Shield Bonds involves the risk of the Issuer becoming insolvent. Should this happen, Investors may lose some or all of their initial investment or all of any outstanding or future expected Interest payments. It is important that Investors understand that such a risk exists.
The Bondholders will not participate in the decisions as to what loans the Issuer will make. The decisions as to the loans the Issuer will make will be decided on by the Directors, in their absolute discretion, and not the Bondholders. Whilst the Directors will make those decisions which they believe to be in the best interests of the Issuer and, therefore, the Bondholders, the Bondholders will not be consulted and will have no control over the day to day running of the Issuer. Bondholders will not, therefore, have an opportunity to evaluate for themselves such third parties and Bondholders will be dependent upon the Directors' judgement and ability in deciding which businesses to deal with.
Bondholders are reliant upon the Issuer's ability to recover loans
Although the Saxon Trust Team have decades of experience in financial services and lending, the Issuer itself has a limited trading record and limited assets (real property or otherwise) and, therefore, Bondholders have limited recourse to the Issuer and are reliant upon the recoverability of its loans. The Issuer mitigates this risk through the operation of a debt management and default policy which provides various steps to be taken should a loan fall into default. This includes taking possession and control of a property and managing the asset to provide the maximum recovery in respect of the loan. As all of the Issuer’s loans are made at conservative loan to values of no greater than 60% and a target loan to value across the Issuer’s loan portfolio of under 50%, this gives enhanced protection to the Issuer as the loans made would only equate to 60% of the value of the secured asset or a target average of under 50% of the assets value at the point of draw down.
The Issuer's management team may change
The Issuer's ability to successfully operate and grow the Issuer's business is largely dependent on the efforts, abilities and services of its senior management and other key employees. The success of the Issuer will also depend on its ability to attract and retain experienced personnel. The Saxon Trust Team has developed an important understanding of the industry in which the Issuer operates and any change in the composition of the Saxon Trust Team could impact on the ability of the Issuer to execute its business strategy successfully and, if this affected the Issuer's revenue, this could impact on its ability to make payments to Bondholders.
Capital Plus Partners Limited could cease to allow ST Loan Services Ltd to act as its appointed representative
The Website portal is operated by ST Loan Services Ltd as an appointed representative of Capital Plus Partners Limited, who are authorised and regulated by the Financial Conduct Authority for arranging the investments. There is a risk that Capital Plus Partners Limited could seek to terminate its agreement with ST Loan Services Ltd to act as its appointed representative for reasons such as ST Loan Services Ltd breaching the agreement through non-compliance with the rules of the Financial Conduct Authority or if ST Loan Services Ltd where to become insolvent or not pay the fees of Capital Plus Partners Limited or that Capital Plus Partners Limited might cease to trade or, in breach of the agreement, cease to allow ST Loan Services Ltd to be its authorised representative, which could, if any of these events were to happen, mean that ST Loan Services Ltd, in order to issue Bonds under the Offer, would have to seek an alternative appointed representative arrangement, which it may not be able to procure, or become authorised in its own right to operate the Website portal, and the Issuer may not be successful in seeking such authorisation, or raise capital for its Bonds through third party intermediaries and brokers. Anything that adversely affects the ability on the part of the Issuer to issue Bonds under the Offer may render the Issuer's business strategy less profitable.
The Issuer may face competition for investment opportunities
Whilst the Issuer will always seek to ensure that any interest charged on any Borrower Loans will be more than the Interest payments under the Bonds, competition for attractive investment opportunities may lead to lower potential returns than expected from Borrower Loans, which may affect the Issuer's revenue. The Issuer may face competition from other entities as a result of such entities having significantly greater financial and/or technical resources than the Issuer or businesses which are more mature than that of the Issuer. In addition, such entities may have a business strategy that is more effective than the Issuer's. These factors may render the Issuer's business strategy less profitable.
There is limited financial information relating to the Issuer
Although the Saxon Trust Team have decades of experience in financial services and lending, the Issuer was incorporated on 23 August 2017 and has a limited proven track record. Audited financial information for the Issuer has been prepared for the period from its incorporation until ● 2019. There is no further, or more detailed, historical financial information relating to the Issuer on which a decision to invest in Saxon Trust Secured Shield Bonds may be made, as would be the case if the Issuer was a larger, more established, company.
The Issuer has not been assigned a credit rating
The Issuer has not been assigned a credit rating by any independent credit rating agency and, accordingly, the Saxon Trust Secured Shield Bonds have not been assigned a credit rating by any independent credit rating agency. Accordingly, Investors will need to make their own assessment of the credit of the Issuer and the other factors which may affect the value of the Saxon Trust Secured Shield Bonds without the benefit of an independent credit rating.
The Issuer requires a strong pipeline of new lending opportunities
A strong pipeline of lending opportunities for the Issuer is an important part of generating revenue to cover overheads and make payments to Bondholders. The Issuer’s directors have extensive experience in the lending space including existing relationships with large broker networks who originate large volumes of loans suitable for the Issuer’s proposition. In addition, the Issuer will self-originate through its own website. The Issuer ensures that a number of key steps are taken in the assessment and suitability of the loan and borrower for lending purposes before a Borrower Loan is made (see the heading "Lending Assessments" in Part Three) and needs to time the making of Borrower Loans in such a way that it has, at any one time, sufficient money to make any payment due to Bondholders. If the Issuer does not achieve this balance effectively, this could have an adverse impact on its ability to meet payments due to Bondholders.
The borrowers with which the Issuer makes Borrower Loans are subject to economic risks
The borrowers which the Issuer intends to lend to (or is entitled to receive payments from) are subject to UK-based economic risk. If there are adverse changes in the market or in the macro-economy, this could cause the Issuer to generate less income than expected which could in turn impact its ability to make payments to Bondholders. As an example, changes to the UK housing market could make property development less attractive and impact on the ability for borrowers to deliver successful sales of finished units, which, in turn, could impact on a borrower’s ability to repay any Borrower Loans.
There are a number of macro-economic factors that fall outside of the Issuer’s control but which could impact on the UK housing market in ways which could include (i) falling house prices, (ii) availability of mortgages for purchasers of property, (iii) cost of mortgages for purchasers of property and (iv) increase or decrease of other costs associated with house buying (such as Stamp Duty Land Tax). Factors which impact on house buying and mortgage lending include, inter alia, gross domestic product output, unemployment rates, consumer confidence, social and industrial unrest, the availability and cost of credit, interest rates, taxation, regulatory and political changes.
These risks could impact on a borrower’s ability to repay any Borrower Loans by causing a delay in the ability for the borrower to refinance the Borrower Loan or sell the subject property in order to repay the Borrower Loan. Although the Borrower Loans would be secured against the property and continue to earn interest, this could increase the risk of the Borrower Loans not being repaid in full or in part which, in turn, could have an adverse impact on the Issuer's business and, therefore, on the Issuer's ability to meet payments due to Bondholders
Whilst there may be an element of commercial property within the loan portfolio which may feature both residential and commercial property as security, the Issuer principally provides Borrower Loans for the purpose of residential bridging finance and, as such, is affected by those risks that are associated with primarily the residential property market as described above but also the commercial property market should any loans be secured against commercial property. To mitigate this risk, the Issuer will seek to ensure its lending activities are diversified across a range of borrowers and projects in different geographic locations across the UK but it is not possible for the Issuer to specify the ratio of any diversification. The Issuer will also have a preference for supporting projects where properties are anticipated to be priced in the mid-market instead of focusing on higher value “premium” properties or lower value properties which each may be more greatly effected by the risks outlined above. This is as a result of, inter alia, the market size for these types of properties being smaller than for mid-market family homes which makes it more likely that the market could be affected by changes to the economy or property market
New rules, regulations and laws could create additional burdens for the Issuer
The structure of the issue of the Saxon Trust Secured Shield Bonds is based on English law, regulatory and administrative practice in effect as at the date of this Base Prospectus, and has due regard to the expected tax treatment of the Issuer and other members of the Saxon Trust Group under UK tax law and the published practice of HMRC in force or applied in the UK as at the date of this Base Prospectus. Whilst the Issuer is not aware of any changes in this regard, no assurance can be given as to impact of any possible change to English law, regulatory or administrative practice in the UK, or to UK tax law, or the interpretation or administration thereof or to the published practice of HMRC as applied in the UK after the date of this Base Prospectus, and the Issuer and other members of the Saxon Trust Group will be under a duty to comply with any new rules, regulations and laws applicable to its operations. Compliance with these rules, regulations and laws could create additional burdens for the Issuer and could have a material adverse effect on its profitability and ability to make payments to Bondholders.
In addition to the rules, regulations and laws referred to above that could affect the Issuer and other members of the Saxon Trust Group, the operation of the Website by ST Loan Services Ltd as an appointed representative of Capital Plus Partners Ltd is subject to any changes to the way that the Financial Conduct Authority treats the operation of the Website and, whilst the Issuer is not aware of any such changes, any such changes that may be made could mean that the Issuer can no longer raise capital via the Website or may need to undertake certain changes.
Furthermore, any future changes to the definition of a "non-mainstream pooled investment" may restrict the Issuer's ability to market bond issues to retail investors in the future, which may prevent many retail investors from participating in future bond issues and prevent the Issuer from raising further capital through its existing bond programmes. In the event the Issuer is unable to raise further capital, it may need to suspend its lending activities until alternate funding could be obtained, which would adversely affect the profitability of the Issuer. Even a delay to the Issuer's fundraising caused by changes to the scope of "non-mainstream pooled investment" may lead to a temporary suspension of its lending activities which would impact its profitability.
There may be changes in the Issuer's tax status or in taxation legislation
Any increases in the levels of taxation or levies to which the Issuer is subject in the United Kingdom, or the implementation of any new taxes or levies or changes in taxation law and or HMRC practice to which the Issuer is or becomes subject, could have a material adverse effect on the Issuer's business, financial condition and results of operations. Any change in the Issuer's tax status or in taxation legislation, could affect the profitability of the Issuer and its ability to make payments to Bondholders.
The legislation relating to ISAs may change
The amount Investors can invest into an ISA each year is decided by the Government. Currently, ISA investments are free from capital gains tax and income tax. These benefits may be changed by the Government in the future. Once Investors have invested the maximum (currently, £20,000 in each tax year) they cannot make any further contributions in the tax year. This means that if an Investor withdraws money from their ISA they will not be able to pay it back in if they have reached their annual subscription limit. If an Investor decides to transfer an ISA from one company to another they will need to do this as an ISA transfer rather than take money out and pay it back in again. If Investors choose to transfer cash from a stocks and shares ISA, they may be required to sell current investments.
The Issuer may be subject to privacy or data protection failures
The Issuer is subject to regulation regarding the use of personal customer and debit and credit card data. The Issuer processes sensitive personal customer data as part of its business and, therefore, must comply with strict data protection and privacy laws. Whilst the Issuer seeks to ensure that procedures are in place to ensure compliance with the relevant data protection regulations, the Issuer is exposed to the risk that these data could be wrongfully appropriated, lost or disclosed, or processed in breach of data protection regulation. If the Issuer or any of the third party service providers on which it relies fails to store or transmit customer information and payment details online in a secure manner, or if any loss of personal customer data were otherwise to occur, the Issuer could face liability under data protection laws which could have a material adverse effect on its business, financial condition and results of operations.
The Issuer may fail to detect the money laundering or fraudulent activities of Investors and could be exposed to fraudulent activities
As an originator of loan assets, the Issuer is exposed to possible fraud by borrowers, purported borrowers, their professional advisers such as solicitors, accountants or valuers as well as by employees. Attempted fraud typically involves borrowers, either acting alone or in concert with professional advisers, seeking to obtain funds by adopting a false identity or using a false inflated property valuation or purporting to own a property or seeking a release of security without redeeming the underlying loan. In addition, solicitors could abscond with completion monies, although the Issuer might be able to seek redress under the indemnity arrangements required by the Solicitors Regulation Authority in such circumstances. A successful claim under a solicitor's indemnity arrangements will, in addition to being able to prove that the solicitor has been at fault and which has resulted in a loss being incurred, depend on that solicitor having sufficient indemnity cover and may have to be made within a certain time limit and, in addition, can be costly and time consuming to make.
The Issuer has put in place a number of processes and controls to detect prevent and report suspicious activity related to money laundering, and to handle requests for assistance from law enforcement agencies and regulators, all of which is overseen by its Money Laundering Reporting Officer, Andrew Gardiner, who is one of the Directors. The Issuer also has insurance in place providing an indemnity against losses arising from dishonest, fraudulent or malicious acts committed by its staff. Third party firms such as valuers and solicitors will have professional indemnity insurance to provide an indemnity against dishonest, fraudulent, malicious or negligent acts. If the Issuer fails to detect the money laundering or fraudulent activities the Issuer could suffer loss or be in breach of its own legal and/or regulatory obligations, all, any or a combination of which could have a material adverse effect on its business, financial condition and results of operations. It is possible that large scale fraud could adversely affect the Issuer's ability to fulfil its obligations under the Saxon Trust Secured Shield Bond Deed.
The IT systems upon which the Issuer relies may fail
The Issuer relies on its information technology ("IT") systems to conduct its business, including the Website. The Issuer's processes and systems may not operate as expected, may not fulfil their intended purpose or may be damaged or interrupted by increases in usage, human error, unauthorised access, natural hazards or disasters or similarly disruptive events. Any failure of the IT systems and/or third-party infrastructure on which the Issuer relies could lead to costs and disruptions that could adversely affect the Issuer's reputation, business, results of operations, financial condition and prospects.
Risk factors relating to the Saxon Trust Secured Shield Bonds
If the Security Document is enforced Bondholders may not receive all amounts due
Pursuant to the Security Document, the Company has covenanted with the Security Trustee to pay to the Security Trustee, as trustee for the Security Beneficiaries, on demand, all monies owing by the Company to the Bondholders or to the Security Trustee (the "Secured Obligations") as and when they are due for payment. The Company has charged to the Security Trustee as trustee for the Bondholders, by way of fixed (i.e. a charge relating to specific assets of a company) and floating (i.e. a charge over assets that change in quantity and/or value from time time) charges as security for the payment and discharge of the Secured Obligations, the assets of the Company.
It should be noted that the Company has a limited trading record and will have no assets (real property or otherwise) other than uninvested cash and Borrower Loans and, therefore, Bondholders have limited recourse to the Company and are reliant upon the recoverability of Borrower Loans.
On a winding up of the Company, distributions would be made to its creditors, which would include the Bondholders, in accordance with a statutory order of priority. The expected ranking of the Bonds compared with other creditors will be as set out in the following table. It is not expected that any material assets of the Company will be the subject of a fixed charge (i.e. the Company does not currently nor does it intend to own any freehold or leasehold properties and as the Company has no trading record the value of its goodwill is not likely to be significant) but that the assets of the Company will be charged by way of a floating charge and that, therefore, on a winding up of the Company the Bondholders would rank in priority, with regards to the proceeds from those assets, behind the expenses of the liquidation, the proceeds due to the holders of other fixed charges and the proceeds due to any preferential creditors, as highlighted in bold and by the arrows below (that is, the Bonds will be ranked fourth in the table below, as highlighted in bold, and behind any obligations in the first, second and third rankings that would take priority):
If the Security Document is enforced by the Security Trustee upon an Event of Default, the Company may have insufficient assets to allow Bondholders to be paid all amounts, whether of Interest or repayment of the original investment amount, due to them.
If the Security Document is enforced the Security Trustee receives payments in priority to Bondholders
Upon the enforcement of the Security Document by the Security Trustee upon an Event of Default, whilst the enforcement can be undertaken by the Security Trustee acting in its sole discretion without the need for the Bondholders having to incur the costs which would have been incurred by the Security Trustee if a meeting of the Bondholders had been required, in accordance with the terms of the Security Trust Deed the Bondholders have a right to be paid amounts due to them only after payment of the remuneration, costs, expenses and liabilities due and payable to the Security Trustee, including costs incurred by it (or any Receiver appointed by it) in enforcing the Security Document, which may be considerable and which will reduce the amount available for distribution to Bondholders.
The Bonds are not protected by the FSCS
The Bonds are not protected by the FSCS. As a result, once an Investor has subscribed for Bonds, neither the FSCS nor any anyone else will pay compensation to you upon the failure of the Issuer. If the Issuer goes out of business or become insolvent, the Bondholders may lose all or part of their investment in the Bonds.
Registration of Charges
Borrower Loans are provided by way of a short-term mortgage secured against the property by way of a legal charge. The registration of charges requires the filing, within 21 days beginning with the day after the day the charge was created, of a Form MR01 at Companies House in order for the charge to be effective. The Form MR01 sets out details of the charge. Whilst the completion of a Form MR01 is undertaken by registered law firms (registered with the Solicitors Regulation Authority in England and Wales, and the Law Society of Scotland for Scotland) on behalf of the Company, no assurances can be given that such law firms will be able to complete the procedures accurately at all times. Where a charge is inaccurately registered, the Company (or the Security Trustee) may be unable to enforce the security in the event of any enforcement following delinquency of a corresponding loan, which could cause the Issuer to generate less income than expected and which could in turn impact its ability to make payments to Bondholders.
The Security Trustee is not responsible or liable, for any loss incurred by the Bondholders relating to a failure of the Company to make payments
The Security Trustee is not responsible, nor will it be liable, for any loss incurred by the Bondholders relating to a failure of the Company to make payments (whether of Interest or repayment of the original investment amount) to the Bondholders when due.
No formal credit ratings
The Bonds will not be assigned a credit rating by any rating agency on issue and the Issuer does not currently have any intention of applying for a credit rating from any credit rating agency.
The indication of yield stated within this Base Prospectus applies only to investments made at (as opposed to above or below) the issue price of the Saxon Trust Secured Shield Bonds. An investment in the Saxon Trust Secured Shield Bonds at a price other than the issue price of the Saxon Trust Secured Shield Bonds could result in a yield on the investment that is different.
Modification, waivers and substitution
The Saxon Trust Secured Shield Bond Deed contains provisions for calling meetings of Bondholders to consider matters affecting their interests generally. These provisions permit majorities of certain sizes to bind all Bondholders, including Bondholders who did not attend and vote at the relevant meeting and Bondholders who voted in a different manner than the majority did.
The Conditions of the Bonds also provide that the Security Trustee may, without the consent of Bondholders, agree to any modification of any provision of the Bonds that, in the opinion of the Security Trustee, is of a formal, minor or technical nature or is made to correct a manifest error and certain other modifications of, and any waiver or authorisation of any breach or proposed breach of, any provision of the Bonds if, in the opinion of the Security Trustee, it is not materially prejudicial to the interests of Bondholders.
Security Trustee indemnity
In certain circumstances, the Bondholders may be dependent on the Security Trustee to take certain actions in respect of the Bonds. Prior to taking such action, pursuant to the Conditions, the Security Trustee will require to be indemnified and/or secured and/or pre-funded in respect of all costs, claims, expenses and liabilities for which it may, in its opinion, thereby become liable to its satisfaction. If the Security Trustee is not indemnified and/or secured and/or pre- funded to its satisfaction, it may decide not to take such action and such inaction will not constitute a breach by it of its obligations under the Bonds. Consequently, the Bondholders would have to either provide such indemnity and/or security and/or pre-funding or accept the consequences of such in-action by the Security Trustee. Bondholders should be prepared to bear the costs associated with any such indemnity and/or security and/or pre-funding and/or the consequences of any potential inaction by the Security Trustee. Such inaction by the Security Trustee will not entitle Bondholders to take action directly against the Issuer to pursue remedies for any breach by any of them of terms of the Saxon Trust Secured Shield Bond Deed or the conditions of the Bonds.
The Issuer has the right to repay the Saxon Trust Secured Shield Bonds early
The Issuer has the right to repay the Saxon Trust Secured Shield Bonds early to allow the Issuer to wind up its business if that was preferable to carrying on, in accordance with the Terms and Conditions, and if this were to happen the length of an investment in the Saxon Trust Secured Shield Bonds could be materially shortened, as too, the period over which Interest is paid.
Realisation from sale of the Bonds prior to their scheduled maturity date
If Investors choose to sell the Bonds at any time prior to their maturity, the price received from such sale could be less than the original investment they made. Factors that will influence the price may include, but are not limited to, market appetite, inflation, the time of redemption, interest rates and the current financial position and an assessment of the future prospects of the Issuer at the relevant time.
An investment in Saxon Trust Secured Shield Bonds is concentrated in one company and not an investment in a diversified portfolio
The Saxon Trust Secured Shield Bond is an investment in one company only, namely the Issuer. Although the Issuer's business model involves lending to a number of third parties and therefore, diversifying its own risks, an investment in Saxon Trust Secured Shield Bonds is concentrated in one company and is not an investment in a diversified portfolio
There may not be a liquid secondary market for the Bonds and their market price may be volatile
The Bonds may have no established trading market when issued, and one may never develop. If a market does develop, it may not be liquid. Therefore, the Bondholder may not be able to sell their Bonds easily or at prices that will provide them with a yield comparable to similar investments that have a developed secondary (i.e. after the issue date) market. The Bonds are sensitive to interest rate, the time for redemption, currency or market risks, the current financial position and an assessment of the future prospects of the Issuer and are designed for specific investment objectives and strategies and are designed to meet the investment requirements of limited categories of investors. For these reasons, the Bonds generally will have a limited secondary market and more price volatility than conventional debt securities. This lack of liquidity may have an adverse effect on the market value of Bonds.
A registered market-maker on the London Stock Exchange's order book for fixed income securities (OFIS) in respect of the Bonds will be appointed from the date of admission of the Bonds to trading. Market-making means that a person will quote prices for buying and selling the Bonds during trading hours. However, the market-maker may not continue to act as a market-maker for the life of the Bonds. If a replacement market-maker was not appointed in such circumstances, this could have an adverse impact on an Investor's ability to sell the Bonds.
Risks related to Issuer's security
Purchasers of any of the Bonds will not have an opportunity to evaluate for themselves the relevant economic, financial and other information regarding the loans to be made by the Issuer and, accordingly, will be dependent upon the judgment and ability of the Directors in acquiring those investments over time. No assurance can be given that the Issuer will be successful in making suitable loans or that, if such loans are made, the objectives of the Issuer will be achieved.
Nature of Borrower Loans
The Issuer will invest in a portfolio of Borrower Loans consisting bridging finance all of which will be secured against the underlying property. The Borrower Loans are subject to credit, liquidity and interest rate risks as well as macro-economic factors which may directly or indirectly result in reducing the market value of the assets secured under the Borrower Loans.
The Borrower Loans will each have been made for use in the Borrower's business and the Issuer will not acquire Borrower Loans which are subject to consumer credit or similar laws. There is no restriction on the type of business that a Borrower may be engaged in although it is expected that most Borrower Loans will have been made for the purposes of property investment and will take the form of a mortgage loan with property as security. The Issuer will ensure that each Borrower Loan is an obligation which has a loan to value ratio in relation to the principal amount of the Borrower Loan equal to or below seventy per cent. and where that Borrower Loan is a mortgage loan with property as security, that the Borrower Loan has been made on the basis of the most recent valuation of the mortgaged properties (for the avoidance of doubt, valuation reports will not be provided to Bondholders).
The Issuer shall also ensure that each Borrower Loan meets all the requirements of the Issuer's eligibility criteria, as laid down by the Issuer's credit committee from time to time. Key aspects of the eligibility criteria are set out below:
Over 18 years of age only
Individuals must be resident in the UK.
Companies must generally be located in the UK, Isle of Man, Channel Islands or the EU. However, other jurisdictions will be considered on a case by case basis subject to enhanced legal review and advice by the Issuer’s legal team.
The borrower must have a successful track-record in similar types of projects and this must be evidenced as part of the application.
Individual borrowers must provide evidence to support their affordability of any loan. This includes reviewing their assets & liabilities, income levels (and spending) and conducting credit checks to look for bankruptcy or other similar proceedings brought against them.
Corporate borrowers undertake a corporate credit check looking at county court judgements, historical income levels and net assets. A corporate group guarantee is usually required and/or personal guarantees from the directors (who are subject to the aforementioned individual due diligence checks).
Significant due diligence is undertaken on the viability of any proposed projects to ensure that loans are supported by fundamental commercials. This includes looking at the entire project from acquisition, through any works to the sale or refinance of finished units – at each stage validating any estimated figures through internal assessment and through the use of third party qualified surveyors as well as stress testing a range of outcomes that are possible to make a view on likelihood of a projects success.
Non-owner occupied properties and/or land only situated in England, Wales or Scotland. Residential and commercial properties accepted. The Issuer will not make regulated mortgage loans to consumers.
The market value of the Borrower Loans will generally fluctuate with, among other things, changes in prevailing interest rates, general economic conditions, the condition of certain financial markets, international political events, developments or trends in any particular industry and the financial condition of the borrowers of the Borrower Loans. A decrease in the market value of the Borrower Loans could adversely affect the Issuer's ability to repay the Bonds.
The offering of the Bonds has been structured so that the Bonds can withstand certain assumed losses relating to defaults on the Borrower Loans. There is no assurance that actual losses will not exceed such assumed losses. If any losses exceed such assumed levels, payments on the Bonds could be adversely affected by such defaults. To the extent that a default occurs with respect to any Borrower loan, it is likely that the proceeds of sale or disposition of the secured property will be less than the unpaid principal and interest on the Borrower Loan.
Borrowers may have given security to other lenders, which would rank in priority to the Issuer's security
The Issuer's security in respect of a Borrower Loan may also secure the repayment of other loans made by other lenders (such as banks, buildings societies or similar institutions) to such borrower as well as securing the repayment of the relevant Borrower Loan. In all such cases the borrower must meet the Issuer's lending criteria at the time of making the loan. In the event that enforcement proceedings are instituted against a relevant borrower under the terms of any such borrower security, any proceeds therefrom which are available to be distributed will first be distributed to any lender which has a higher ranking security. As such, there is a risk that, upon enforcement of a Borrower Loan, the Borrower Loan will not be repaid in full, since the Issuer must share the enforcement proceeds with other, higher ranking, lenders.
General risk factors
It is intended that the Issuer will make secured loans to third parties, as described in this Base Prospectus. There can be no assurance that the Issuer’s investments will be successful, that its lending objectives will be achieved, that the Bondholders will receive the full amounts payable by the Issuer under the Bonds or that they will receive any return on their investment in the Bonds. Prospective Investors are, therefore, advised to review this entire Base Prospectus carefully before deciding whether to invest in the Bonds.
Bondholders have no recourse to third party borrowers
No Bondholder will have any entitlement to enforce any of the provisions of the Issuer's loans to third party borrowers or have direct recourse to the corresponding borrower.
Limited Resources of the Issuer
The Issuer does not as at the date of this document have any available cash reserves and the Issuer's ability to meet its obligations in respect of the Bonds, its operating expenses and its administrative expenses is wholly dependent upon payments of capital and interest by third party borrowers and any available cash reserves.
As a result of the outcome of the UK Referendum on continued membership of the European Union, the UK has commenced the process of withdrawing from its membership from the European Union. The terms of this withdrawal and the ongoing relationship between the UK and the European Union are still to be negotiated and this introduces elements of political uncertainty which may have financial consequences for the Issuer.