Discretionary
Provision Funds

Assetz Provision Funding Limited (“APFL”), a UK Limited Company, has been set up to provide discretionary Provision Funds linked to specific, identified Investment Accounts.

Almost all of our investment accounts (excluding the Manual Lending Account) include discretionary Provision Fund coverage. The primary goal of each Provision Fund is to provide lenders with an additional layer of protection against the prospect of capital loss, over and above the asset security on each loan.

The Provision Funds we offer do not give you a right to a payment so you may not receive a pay-out even if you suffer loss. The funds have absolute discretion as to the amount that may be paid, including making no payment at all. Therefore, investors should not rely on possible pay-outs from the Provision Funds when considering whether or how much to invest.

Please see also our Provision Fund policy

For more information on our discretionary Provision Funds please read the ‘How it works’ section below. Or you can visit the Key Account Information on each investment account page for details of their current balance.

How it works

The primary goal of each Provision Fund is to:

Provide lenders with an additional layer of protection against the prospect of capital loss, over and above the asset security on each loan. Everything else is secondary to this.

The aim is for the Provision Funds to have sufficient cash to be able to cover actual losses incurred on loans held within the relevant Investment Accounts as they arise, however, Assetz Capital can provide no guarantee of this. From time to time Assetz Capital may decide that excess cash or assets exist and may draw that excess value to Assetz Capital without any obligation to repay, but in doing so will be mindful of the overriding aims of the Provision Funds.

The following Investment Accounts benefit from a discretionary Provision Fund:

Quick Access Account
30 Day Access Account
90 Day Access Account
Property Secured Account (Closed to new investment)
Green Energy Account (Closed to new investment)
Great British Business Account (Series 1) (Closed to new investment)
Great British Business Account (Series 2) (Closed to new investment)

The value held in each Provision Fund is set out in the Key Account Information page relating to that investment account.

Each Provision Fund is funded principally by:

Cash provided by Assetz Capital (typically when a new Provision Fund is launched and “seeded” to allow it to provide some coverage straight away).
Part of the interest rate coupon paid by the borrower on an ongoing basis (above and beyond the target interest rate of the associated Investment Account) which serves to grow and/or replenish the Provision Fund over time.

The balance, blend and source of the funding may vary over time at the discretion of the Directors of APFL.

Who exercises the discretion when it comes to utilising a Provision Fund?

The Directors of APFL will determine whether payment should be made on a case-by-case basis depending on the circumstances.

At least some of the Directors of APFL are presently common with Assetz SME Capital Limited, the regulated entity which trades as Assetz Capital, but this may change over time if considered appropriate.

It is the intention of the Directors of APFL that, subject to funds being available, they would agree to pay out under all reasonable circumstances where, firstly, there is a genuine capital loss on a defaulted loan and, secondly, where there is a delayed / missed payment on a performing loan for an Access Account that would otherwise affect it paying target rate (the latter operation does not apply to any discontinued Investment Accounts).

What the Provision Funds are intended to cover on a discretionary basis:

actual capital losses (following recovery work) arising from a defaulted loan
delayed / missed payments on a performing loan within the Access Accounts only (not any discontinued Investment Accounts which may still benefit from a Provision Fund)

What the Provision Funds do not cover:

The Provision Funds are not designed to cover interest following a Credit Event, which typically accrues at a higher rate and where recovery action can take some time, depending on the type of security supporting the loan. Paying increased interest through an unknown recovery timeframe would make it difficult to predict accurately the likely actual loss from a loan and, therefore, the Provision Fund’s ability to bear it. It could also place a significant additional burden on the Provision Fund, potentially depleting it at a much faster rate and leaving it unable to cover capital losses arising from loans subject to a Credit Event in the future. Covering capital losses is the primary goal of the Provision Fund.

Separately, in a situation where lenders vote to accept a proposal from a borrower for debt forgiveness when there is a clear alternative that offers the prospect of full recovery of lenders' funds, the Provision Fund will not normally cover losses for those individual lenders who voted to accept that loss. Lenders that did not vote or that individually voted against taking a loss should expect to be covered by the Provision Fund.

Finally, should a Provision Fund become depleted as a result of covering existing loans which have been subject to a Credit Event, that Provision Fund may be unable to cover some or even all of any future losses unless and until such time as the Provision Fund is replenished.

If a Provision Fund makes a payment to lenders but the borrower subsequently pays:

Any payments of delayed interest (or lost capital) from a Provision Fund to a lender requires that if that interest or capital is somehow later collected from those specific loans then the funds collected will be used to repay the associated Provision Fund.

Coverage of payment delays or shortfalls within the Access Accounts:

The Provision Funds for the Access Accounts (currently the Quick Access Account, the 30 Day Access Account and the 90 Day Access Account) operate slightly differently as they also cover missed interest payments and these differences are highlighted here.

The Access Accounts pay a target, capped rate of interest on an equivalent monthly basis. The monthly payments to lenders flow from the loan interest from the loans held by lenders in the Access Account. Any interest received above the level required to service the monthly payments to lenders is allocated to the Access Account’s Provision Fund, as per the terms of the account.

If a loan is subject to a Credit Event and is not paying interest it will not, in isolation, prevent the full monthly payment from being made to lenders as there is normally a significant surplus of loan interest coming into the account: the same surplus which normally goes to fund the Provision Fund. In such a scenario, the amount of the surplus going to fund the Provision Fund would be reduced slightly (which incidentally has the same net effect as the full amount of the surplus going to the Provision Fund, then some of it being drawn back to pay the missing interest due to lenders).

The effect of this is that, while the Access Account continues to pay the capped rate of interest to lenders then it is, in practical terms, covering any missing interest due from loans subject to a Credit Event held within the Access Accounts.