How will I know what level the Access Accounts are operating at?
The Access Accounts are not presently in Normal Market Conditions. The accounts are currently operating on a matched investment and withdrawal basis whereby each £1 of new investment from one investor creates £1 of withdrawal for another. Please be mindful of this when investing in the accounts. Find out more.
Access Accounts - Automatic Operating Level
The Access Accounts aim to hold a certain amount of cash “liquid” to fund new loans, to facilitate future funding commitments of existing development loans within the portfolio and to help increase the liquidity of withdrawal requests above and beyond normal market supply and demand for loans on the secondary market.
The Access Accounts are designed to automatically adapt to market conditions and levels of cash within the accounts. The table below shows you how the Access Accounts will operate, depending on the amount of cash they hold in Normal Market Conditions and also in non-Normal Market Conditions in the presence of a withdrawal queue:
As the table above contains lots of information, we’ve included some explanatory text below. You can also view or download the table in a PDF by clicking here.
The central column or “pillar” describes the various operating levels of the Access Accounts. The columns to the left and right then describe the behaviour of the Access Accounts at each operating level when there is no withdrawal queue (left column) or when there is a withdrawal queue (right column).
To help you understand what these operating levels means for you and your investments, we’ve explained how each level works and the amount of liquidity you can expect going forward.
Minimum Operating Level
The Access Accounts (AAs) have a Minimum Operating Level, which is best described as holding the minimum amount of cash needed to cover future funding commitments (i.e., the future funding of existing loans already within your portfolio – typically development loans which have not yet fully drawn). If the cash balance in the AAs is below this figure, as shown in the table above, the accounts are under-funded and will retain 100% of principal repayments and will stop funding new loans. This helps to protect your existing investments in loans where there are outstanding funding commitments needed to complete the development and repay the loan. Without this precaution, existing development loans within your portfolio could fail, potentially leading to substantial capital losses.
In this scenario, withdrawal requests would be fulfilled on a first in, first out basis by new investment only until cash balances in the AAs rise above the Minimum Operating Level. It’s important to remember that investors can also apply a discount to their withdrawal instructions using the AA Marketplace to potentially speed up their withdrawal requests (subject to demand from other investors).
Funding Commitments Met Level
When the Access Accounts hold cash balances above the Minimum Operating Level and below the Maximum Supported Level, they will operate at the Funding Commitments Met Level. In this scenario, provided there are no queued withdrawals, the AAs would retain 100% of new investment and principal repayments in order to grow its cash balances and fund new loans.
As shown on the table above, the Funding Commitments Met Level ranges from the lowest amount of cash the Access Accounts can support to the highest. Where the cash balance sits in this range is important as it will determine how withdrawal requests will be treated.
When cash balances in the Access Accounts are lower, the Access Account’s overall cash balance would not be used to pay out withdrawal requests immediately. Instead, withdrawals will be fulfilled from principal repayments in the AAs, pro-rated to the investors’ total holdings in a loan. Withdrawals will also be fulfilled by 25% of principal repayments to investors who do not wish to withdraw, with the remaining 75% being used to grow the AA cash balances and support new lending. In Normal Market Conditions we would expect withdrawals to be completed within one business day.
When cash balances in the Access Accounts are higher, it would be used to complete withdrawal requests almost immediately. In the event of a withdrawal queue, investors with outstanding withdrawal requests would receive 100% of all principal repayments in the AAs, pro-rated to their holdings. 100% of principal repayments relating to investors who do not wish to withdraw would also be used, through reinvestment, to further increase the speed of withdrawals. This will be prioritised to pay investors who have very small outstanding withdrawal requests (<£0.01) and those with discounted loan holdings first.
It’s important to note that regardless of where the AA cash balance sits on the range, if there’s a withdrawal queue, 100% of new investment will be directed to the queue. New investment will be distributed on a discount-weighted first in, first out basis.
Maximum Supported Level
The Access Accounts will become over-funded and exceed the Maximum Supported Level if they hold too much cash. This is because the accounts seek to pay the target rate on both the cash portion of funds and the amount that is invested in loans. Therefore, if cash levels become too high, it will become more difficult to pay the target rate from the loan interest received from borrowers and will significantly reduce any surplus loan interest to the Provision Funds. Therefore, when the AA cash balance exceeds the Maximum Supported Level, the accounts will automatically take steps to reduce it.
In this scenario, the Access Accounts would be closed to new investment until they are operating below the Maximum Supported Level. This includes both new funds invested on the platform and the reinvestment of interest and capital, which would be diverted back to an investors cash account.
Withdrawal requests would be satisfied immediately using the AA cash balance and it’s also possible that any further excess funds may be periodically repaid to lenders on a pro-rata basis, based on their total AA holdings.