Wellesley Finance has answered investors’ questions regarding its proposal to enter a company voluntary arrangement, with a few days left before voting closes on its restructure.
The alternative property lending platform announced earlier this month that it had suspended all payments to investors while it asked its creditors to back a CVA, after revealing it was facing liquidity issues due to the pandemic and the changing regulatory environment that made it harder to raise funding through the issue of listed bonds on Euronext Dublin.
Investors have had since 22 September to read the CVA proposal and vote on it by 13 October.
Some investors and creditors have queried a section in the CVA titled reviewable transactions. Peer2Peer Finance News has put these queries to the company.
The section details transactions from the past two years “which could potentially be challenged at a future date by an administrator or liquidator.”
Andrew Turnbull (pictured), director of Wellesley Finance, told Peer2Peer Finance News that this is a necessary component of a CVA.
“It does not comment on the likelihood of a challenge being successful,” he said.
The section also reveals a couple of instances of errors or unclear agreements that investors have queried.
For example, the document shows a payment of £7.7m had to be paid by Wellesley in July 2020 from the general assets of the company to a segregated account on behalf of its secured minibond investors after an error was discovered in the methodology used to calculate the level of collateral required.
“A reconciliation issue was realised which identified that there was a collateral shortfall in the programme meaning funds which should have been held in the programme account were otherwise sitting in the company’s operating account,” Turnbull said.
“Upon identification of the issue, the funds were moved to the programme account to ensure that the secured mini-bond funds were held in the correct place and not put at risk in the event of insolvency.
“Therefore, we considered that this was the correct action to take given it would have unfairly benefitted the general creditors of the firm who otherwise were not entitled to those proceeds.
“The error was identified during the summer and was corrected within the 10 day cure period as outlined in the invitation document.”
The document also shows that the platform’s founder Graham Wellesley had a director’s loan of £2.4m restated as £2.07m to reflect a comparable market rate and the value of the preference shares that were funded with the money.
It states that a fee of £56,889 had been added when the loan was set up in 2016 which was disputed by Graham Wellesley.
Turnbull says this was a “clerical issue.”
“The fee was deducted from the facility as an eligible cost which was never supposed to be borne by Graham,” he said.
There have also been queries regarding Wellesley’s investments outside of the property space, such as 1pm plc and Urban Exposure.
Turnbull said these were considered to be “sound investments.”
“The unsecured bond holders invested in Wellesley to provide working capital for business expansion amongst other general corporate activities. As such these proceeds were used to fund this activity,” he said.
Additionally, some investors have questioned the sale price of Wellesley’s loanbook to its subsidiary Cloverleaf for £45m.
However, Turnbull said Cloverleaf’s bid was 10 per cent higher than other approaches.
“The mini-bond holders and other creditors of Wellesley Finance will receive benefit from the success of the sale of the loanbook and the preferred shares being offered to mini-bond holders reflects this fact,” Turnbull said.
“Those investors such as the P2P and listed bondholders were held off balance sheet and this is reflected in the higher percentage return they are being offered in the CVA compared to other investors.
“As the P2P and listed bond holdings were off balance sheet they would not benefit from the upside in the working out of the loanbook.
“Where P2P and listed bond holders are benefitting is from the higher bid that Cloverleaf is making against external market bids.”
A spokesperson for Wellesley Finance added that the company understands the concerns of investors but emphasised that its funding sources have dried up due to the pandemic and regulatory restrictions on selling listed bonds to retail investors.