Pollen Street Secured Lending’s (PSSL) investment manager has warned of increasing arrears in historical Funding Circle loans in the trust’s portfolio, as it reveals its exposure to the coronavirus pandemic.
Pollen Street Capital (PSC), which manages the alternative finance-focused fund, said small- and medium-sized enterprise (SME) loans in its portfolio have been hardest hit initially by the outbreak.
A performance update for March from PSSL revealed that 13 per cent of loans in its property and SME portfolio are in forbearance, meaning payments are postponed or reduced, and there has also been a doubling of arrears.
Property and SME loans make up 10 per cent of the portfolio, and this includes a run-off exposure to Funding Circle, which accounts for around four per cent.
“The Funding Circle portfolio has shown increased arrears over the course of April and we anticipate elevated impairments in this portfolio over the coming months,” PSSL said.
PSSL stopped backing Funding Circle loans in 2018 and the peer-to-peer lender has tightened its lending criteria since then.
The PSSL update showed PSSL has made a one-off provision of £2m to cover losses across its whole portfolio due to the worsening economic outlook caused by the coronavirus outbreak.
It has made a further £1.5m write down of a legacy equity position.
PSSL said its legacy book, which includes P2P loans, continues to run off and now only represents five per cent of the portfolio compared with 10 per cent in the middle of 2019.
“Whilst performance of this book has been poor to date and it is expected that impairments will increase over the coming months, the loans are now well seasoned, granular and pay interest and principal monthly and therefore will continue to run off relatively quickly and generate cash for the company,” the update said.
These changes meant the investment trust reported a net asset value (NAV) return of just 0.04 per cent for the month.
It is currently on a discount to NAV of 38.1 per cent.
There is no mention of the ongoing dispute between PSC and the PSSL board over a potential cash offer for the fund from Waterfall Asset Management.
Waterfall has until 19 May to make an offer.