Loan Note Investments

D

Daddy Ireland

Registered User
Messages
458
Anyone any experience of investing in this type of vehicle as part of a balanced portfolio. Typically pay about 9% per annum or thereabouts for durations of approx 3 years. Usually monies are required for property development. Typically senior debt first charge on the asset been financed and typically perhaps 70% of a project is financed by this type of senior secured debt. In this case in the event of the company going belly up one should have a very good chance of getting their money back. Not sure of tax implications but I guess the interest is only subject to CBT. All thoughts appreciated.
 
I think at 9% the chances of getting your money back if it goes belly up are very slim.

The interest would be subject to Income Tax, PRSI and USC.

The company should withhold 20% withholding tax and remit it to the Collector General and you can claim a credit for that.
 
There is a reason why the rate is high... and on what planet does MBS form part of balanced portfolio??? We have been here before and it did not go so well.
 
I’d run a mile.

If it goes well, you get 9%.

If it goes badly, you lose it all.

Development risk with capped upside...I would run two miles!
 
I agree with the previous posters, stay away.

The reason being that if things go wrong the first 70% of any assets go to the senior debt, the bank presumably.

This usually involves the bank putting in a receiver whose priorities are

1. His own fees
2. The banks money

If there is anything left after that he looks again at his own fees to see how he can charge some more.

When I was about 21, I was sent to a certain business in receivership, my employer was the receiver. I clocked in in the morning, I clocked out in the evening and my employer charged 50 quid an hour. Sometimes we photocopied, mostly we played pong.
 
Hello,

I have come across some parties that are offering "loan notes" to help raise funds for property development projects, that are secured by first fixed mortgages over freehold properties, so we all need to be very clear as to what exactly the original poster is talking about here.

In the case of an unsecured loan note, 9% pa is far too low for the likely level of risk to be taken on. The specific return required will differ from one individual to the next and also, from one deal to the next, but I would be looking for high teens and upwards for my annual return.

In the case of a secured loan note, then much depends on the quality of the security offered, the overall loan to value (of security), the time until maturity and return of the loan, the likelihood of the project succeeding, the risk of the project being significantly delayed, the risk of the security dropping in value etc. 9% pa may be an acceptable return here, but much depends on the specifics of the transaction.

Regardless of whether we are talking about a secured or unsecured arrangement, there is a serious risk with these deals because your funds are going to be used for one development project, or given to one borrower, and as such it's either high risk, or extremely high risk, depending on whether you are getting (real, tangible, enforceable) security or not.

Get an independent solicitor to read over the documentation and advise you on it's implications, and in particular if the documentation you are being asked to sign can be enforced in an Irish court, before you proceed with either of the above options.

Definitely not suitable for widows or orphans, or about 90% of the rest of the population !
 
Thanks for the replies. Mr Earl you make very good points. Cremeegg , my loan would rank equally with the banks I am sure as secured first fixed mortgage. A leading investment firm raised circa 25 million euro last year from loan note issuances. I would imagine they would have vetted the companies extremely well before taking on the raising. Nothing worse than a bad deal to sour the reputation. A certain '.Money Doctor ' recommends these on page 367 of his current book to people with pension lump sums who have cleared their mortgages and have the kids sorted. But I too take all of your points on board.
 
There is no way you would get 9% on a senior loan note where there is tangible security.
 
Daddy Ireland said:
A leading investment firm raised circa 25 million euro last year from loan note issuances. I would imagine they would have vetted the companies extremely well before taking on the raising.
Click to expand...

€25 million is peanuts, expect very little over site for such a small amount. It this was such a good deal at 9% the firm would have had no problem laying it of to a client and you'd have never heard of it. You appear to be way out of your depth on this and would be well advised to walk away.
 
Thanks again. All thoughts appreciated. No commitment made. Exploring all avenues to get an income from 250k in retirement. So this is just another area I came across to look into.
 
Daddy Ireland said:
100% . Looking for ideas that would return 5%.
Click to expand...

That sort of investment would be crazy for your portfolio. If you had €5m, €250k into something like that would be punchy.

Is that 5% gross?

What about a diversified European REIT portfolio?

Or a Medium Risk fund or portfolio with 50-60% equity content?

Or, and some will shoot me for saying it, an investment property?
 
Only would have contemplated 10% being 25k to the loan note idea. Still not ru,ing that out with proper research.

Well I reckon 5% net was on my mind for that part of my investment.

Thanks for other ideas.
 
Daddy Ireland said:
Investment property today. Not a chance.
Click to expand...

How can you contemplate lending 10% of your investable wealth to a borrower who can’t get finance anywhere else so he/she can build houses, but baulk at buying a property?

For the record, I think there are more diversified solutions for you.
 
Because at my age 60 to buy an investment property I would have to use pretty much all of my investible wealth or get involved in borrowings. Being a landlord ain't of interest to me with all the associated rules and regulations. So as you say some people would shoot you for suggesting an investment property. Seems though there's a lot of fools investing in loan notes for example if 25 million was invested through one investment firm. It might be tiny but that is one firms clients monies. I am looking for ways to invest 250k to get some decent return and thought 10% to such a project would be an idea and hence I sought opinions. Mr Earl made a lot of sense ans so I am unlikely to go down this path without sound fundamentals being in place.
 
Hello Daddy Ireland,

For what it's worth, I would be far quicker to invest in quoted equities (value stocks) across the Irish, European or possibly even US stock exchanges, if I were you.

There are many very sound, long time established, multinational companies that should on average, give you 5%-7% pa (between dividends and capital growth).

Granted, there is a risk that the value of the individual shares might fall, but there is also the very important attraction of liquidity - you can sell the shares anytime you want.

Also, you don't have to invest in one sector (i.e. property), you could diversify across several industries, so as to reduce your risk significantly.

You won't be able to sell a loan note very easily, if you want your funds back at any point before it repays :)
 
Interestingly, below is article along the lines of what OP might have read.

https://www.rte.ie/lifestyle/living/2017/0731/894203-are-you-ready-for-retirement/

While there are examples of where this has been possible, it's not risk free. Google Ballisk Homes for an example of one that has worked out - but even there there is a limit to the upside. An equity investment in the same period would have been far more profitable.

Just remember those who are involved in issuances of Loan notes receive their fee income upfront, whether the loan repays or not!
 
You must log in or register to reply here.
Back
Top