1.1. The Loan Loss Provision (the ‘LLP’) is a cash amount set aside by Growth Street Exchange Limited (‘Growth Street’) which may be used to purchase defaulted loans from investors on the Growth Street platform. The aim of the LLP is to prevent platform investors from sustaining a loss of capital or interest. This is achieved by the LLP purchasing defaulted loans from investors at full value, thereby taking over the risk of non-payment by the borrower.
1.2. It is important to note that the use of the LLP is discretionary, and the LLP is not a guarantee that investors will get their money back –and investors should not rely on possible pay-outs from the LLP when considering whether or how much to invest.
2. Legal structure
2.1. The LLP is held by Growth Street Provision Limited (company number 09495633, ‘GSP’), which is a wholly owned subsidiary of Growth Street Holdings Limited.
2.2. GSP has four directors, appointed by the shareholders. If the board of GSP is required to vote on a proposal or action, any directors whose outside interests may conflict with the proposal will recuse themselves from the vote.
2.3. As well as holding the LLP, GSP acts as a security trustee for investors by taking and managing security provided by borrowers on the Growth Street platform. It also manages the workout and recovery of any defaulted loan contracts which it purchases using monies standing to the credit of the LLP, repaying any recovered amounts into the LLP.
3.1. Funds in the LLP come from three sources:
3.1.1. Borrower contributions - A proportion of each Interest payment paid by borrowers is allocated to the LLP. To calculate the rate paid (the ‘ Risk Rate ’) for each facility, borrowers are categorised by their risk, taking into account their probability of default and loss given default. The calculation should ensure the Risk Rate payable by each borrower is fair and appropriate and that it is reflective of the risk profile of the facility being offered, the time value of money and the credit spread of the underlying loans. Borrowers’ Risk Rates are under continued review, making use of structured data obtained by Growth Street as part of the ongoing credit assessment process.
3.1.2. Shareholder contributions - This is money invested in the LLP by Growth Street’s shareholders by way of debt and equity. Any funds added to the LLP in this way rank behind the contractual obligations the LLP has to platform investors.
3.1.3. Recoveries - If the LLP purchases a defaulted facility from the platform, it will continue to pursue the borrower for repayment. Any repayments received (i.e. recoveries) are paid back into the LLP
3.2. The money held in the LLP belongs to GSP. The investor terms dictate that GSP may in its absolute and sole discretion decide whether to purchase defaulted loans from the platform investors using monies standing to the credit of the LLP. If Growth Street becomes insolvent, this contractual claim will rank above the rights of shareholders for repayment of their debt or equity contributions to GSP.
4. Borrower default and recovery
4.1. To monitor the health of borrowers on our platform, Growth Street reviews the use of their facility, payment of monthly interest and fees and overall financial health. If a borrower fails to make a payment or no longer meets the financial conditions set out in their facility agreement, Growth Street’s relationship management team will begin to more proactively monitor the customer.
4.2. Growth Street will always try to work with borrowers to support them through difficult times, so this will likely start out by reaching out to the customer to discuss the issue, but can progress to arranging a visit, conducting an audit, reducing the customer's credit limit, or ultimately taking legal or enforcement action. This can involve enforcing security, or if personal guarantees have been provided by directors, taking action against the directors personally.
4.3. If a borrower goes into ‘Default’, the Head of Credit will submit a recommendation to the board of GSP requesting that it considers purchasing the facility. . GSP may then in its absolute and sole discretion decide whether to purchase such facility for full value from the relevant platform investors using monies standing to the credit of the LLP .
4.4. Default is defined as where:
4.4.1. Interest and/or fees due under the facility are 90 days or more overdue;
4.4.2. Growth Street has requested full repayment, no repayment plan has been agreed or an agreed repayment plan is 90 days or more in arrears; or
4.4.3. the borrower has entered into administration, liquidation or a creditor arrangement whereby less than 100% of the debt owed will be repaid within 1 year along with Interest and fees.
4.5. GSP’s board may agree to purchase a borrower facility before a technical Default occurs if recommended by the Head of Credit. This is likely to happen where Growth Street believes the borrower is likely to default in future, or if it believes the purchase will facilitate more successful recovery from the borrower (for example, if it would be best to allow the borrower an extended payment break or repayment schedule).
5. Resolution Event
5.1. If, in the reasonable opinion of the board of directors of GSP, taking into account its financial commitments and likely future recoveries, the purchase of a facility in Default would leave it unable to cover expected future borrower defaults, and the board does not reasonably believe the position can be rectified in the ordinary course of trading, it will declare a ‘Resolution Event’.
5.2. If a Resolution Event is declared all investors will be notified as soon as possible but at the latest, within 5 working days. All funds held in unmatched Lend Orders will be returned to investors’ holding accounts and any funds held in holding accounts will be available for investors to withdraw at any time. No new deposits or lend orders will be accepted.
5.3. To spread the risk of borrower default equally between all investors, if a Resolution Event is declared, the benefit of all loans outstanding will be immediately assigned to GSP to be held for the benefit of the investors as a whole. All payments received from borrowers will continue to be collected by GSP and held on trust for the platform investors and for any Growth Street entity owed money by the borrower.
5.4. GSP is free to use funds held in the LLP and/or funds collected from borrowers to fund any payments which it reasonably believes will maximise the probability of borrower repayment, whilst also ensuring borrowers continue to be treated fairly during the collect out process. For example, funds held may also be used to fund new drawdown requests if it is determined that a failure to fund the request will materially impact the borrower’s ability to (1) continue trading, (2) repay their facility, or (3) re-finance.
5.5. Distributions of available funds will be made to investors on a quarterly basis, in proportion to their outstanding investments.
6.1. If the LLP purchases a loan from investors, the payment will be identified as an LLP assignment on their monthly investor statement.
6.2. Growth Street will publish data on the composition and performance of the LLP on its public website. The information will be updated at least quarterly and will include:
6.2.1. the amount of money held in the LLP compared to the total amount outstanding on the platform which is covered by the LLP;
6.2.2. the amount of borrower and founder contributions paid into the LLP;
6.2.3. the number and amount of borrower facilities purchased by the LLP;
6.2.4. the amount of any recoveries received by the LLP in relation to defaulted borrowers; and
6.2.5. any costs incurred by the LLP.
6.3. The value of the LLP will only include the actual amount of money held by GSP and will not take account of any expected future income or recoveries.
7.1. This policy should be under continuous review, having regard to the size and complexity of the business and macro-economic factors. At a minimum, the policy should be reviewed and re-approved on an annual basis. Any review should consider whether implementation of the policy ensures investors are only being exposed to risks within the parameters advertised.
7.2. The day-to-day management and monitoring of the LLP will be undertaken by the Risk team. Money received and paid out of the LLP must be reconciled on at least a monthly basis.
7.3. Information about the LLP and its adequacy must be reported to the board of Growth Street and GSP on at least a quarterly basis, and on each occasion an assignment to the LLP is requested. The board should have regard to expected default and coverage rates when assessing whether any proposed assignment (or other event) may result in the LLP not having adequate funds to cover expected future defaults, resulting in a Resolution Event being declared in accordance with section 5 above and clause 6 of the Investor Terms.