Section XX

Retail bonds, mini-

bonds and
Crowdstacker

Ref: EY-000003280-01
 Debt Advisory insight

Group structure

Retail bond example: BlueZest Unique Funding

Limited

Overview
► Bluezest has offered its first secured retail bond issuance of Sterling 100% 100% 100%
denominated bonds amounting to £1.5bn BlueZest Mortgages International
BlueZest Funding
► The 5.25% p.a fixed rate bond are due to mature in 2022, will be invested in and Loans Limited Risk Partnership
Limited
the specialist buy-to-let and development retail mortgages lent by the Blue (Obligor) Limited
Zest Mortgages and Loans
► The 5.25% Bonds due 2022 are expected to be the first series of bonds
Guarantee Bond issuer:
issued under the Programme with frequent issues of 1, 3 and 5 year bonds to BlueZest Secured
follow Retail Bond PLC

Terms of the retail bond Eligibility criteria

Issuer BlueZest Secured Retail Bond PLC Security
Obligor BlueZest Mortgages and Loans Limited Max LTV
• Max BTL LTV: 85%
(including
Redemption Single redemption date • Max Business Loan LTV: 75%
capitalised
• Max Property Development Loan LTV: 75%
Early fees)
No early redemption fees or exit fees
redemption • The maximum loan amount is £2m for a Buy-to-Let Loan and £1m for a
Max loan size
Term 5 years Business Loan or a Property Development Loan
Loan purpose Buy-to-Let, Business Loan and Property Development Loan
Coupon 5.25% p.a
Requirements:
Arrangement • The Mortgaged Property must be suitable for residential and/or letting
fees • Secured on freehold or leasehold property (if leasehold, must have at least
Security Property 55 years remaining at inception and 45 years at the loan maturity)
Restrictions:
• Grade I listed buildings not permitted
• Flats above 4 storeys with a value less than £300,000 not permitted
Covenants • Asset Coverage Ratio shall be not less than 1.0
(tested quarterly) • Interest Coverage Ratio shall not be less than 1.1
Transfers

Borrowers Individuals and limited companies

Settlement Euroclear, CREST, Clearstream
Single
Market Main Market of the London Stock Exchange borrower limit
Transferability Freely transferable
• Not bankrupt for at least 36 months
Subscription Min. subscriptions £1,000; £100 denominations Credit history • No two or more missed payments on any credit facility in the last six months
• No CCJ in last 36 months
Use of proceeds Origination of Buy-to-Let loans

Ref: EY-000003280-01
EY Corporate Finance 2
 Debt Advisory insight

Retail bonds, mini-bonds and Crowdstacker

Retail bonds
► A retail bond is a bond issued by a company that is
bought directly by the investor. They pay interest over
Description
the term and principal repaid at maturity
► The London Stock Exchange launched the Order Book
for Retail Bonds (ORB) in 2010, where bonds are listed
► The key aims of the ORB were to establish a primary
market for distribution of dedicated retail bonds, open
Markets and up new sources of capital for companies seeking to
Regulation diversify their funding, and develop an efficient,
transparent secondary market
► Retail bonds are not protected by the Financial
Services Compensation Scheme (FSCS)
Mini-bonds
► Mini-bonds are similar to retail bonds in that they allow
companies to issue bonds to investors. The main
difference is that mini-bonds are not listed and are not
tradeable
► They are not listed on any market, therefore, they are
subject to less regulation and cannot be traded
► Mini-bonds are not protected by the Financial Services
Compensation Scheme (FSCS)
► The investor must be a high net worth investor and a
sophisticated investor or restricted investor as defined
by FCA COBS rule 4.7.7
Crowdstacker
► Incorporated in 2014, Crowdstacker is an online peer-
to-peer lender that provides loans to businesses that
are funded by a large number of small individual
investments from a pool of investors
► Crowdstacker is registered with and regulated by the
FCA
► Lending via this platform is not protected by the
Financial Services Compensation Scheme (FSCS)
► Crowdstacker provide a secondary marketplace where
loans can be transferred
► 70% of investors do so via an IFISA

Size: >£50m Size: £1m+ Size: <£50m

Tenor: 7-9 years Tenor: 3-5 years Tenor: 1-3 years
Pricing: 4-6.5% Pricing: 5-10% Pricing: 5-8%
Timing: 8-12 weeks from start to completion Timing: n/a Timing: Initial setup and due diligence of 6 weeks, funds
Typical
parameters Fees: 0.5-2% Fees: n/a are raised at £0.5-1m per month
Interest payment: Minimum investment size: n/a Fees: 2-3%
Minimum investment size: £2,000 Average investment size: n/a Minimum investment size: £100-£2,000
Average investment size: £25,000 Rating: No rating required Average investment size: c. £25,000
Rating: No rating required Rating: No rating required
► Retail bonds have traditionally been issued by larger ► Companies that issue mini-bonds are generally smaller ► Most suited to small growing companies looking for a
Who this FTSE companies, whilst smaller companies tend to than those that issue retail bonds more flexible source of finance than available via
could be of issue mini-bonds ► Less regulation than retail bonds, possibly making traditional funding
interest to ► Alternative lenders are regular issuers them a more flexible funding option with fewer ongoing ► Prefer lenders with ‘hard assets’ (e.g. Leasing) or
requirements reputable business (e.g. Challenger Banks)
► These bonds are issued to retail clients and so ► Allows client to source flexible funding based on their ► Funds are sourced at £0.5-£1m per month, and so will
diversifies sources of funding away from institutional own requirements suit a lender that needs funds on an accretive basis, for
investors ► Due to the additional risk and lack of tradability, it is example if growing the loan book
Why this ► There is an established market in the form of ORB, likely to be more expensive than other forms of funding ► Provides opportunity for client base to become
could be of
providing investors ability to trade ► Allows companies to build a closer bond with investors
interest ► Covenant and eligibility criteria flexibility customers

Example ► LendInvest ► Wellesley ► Amicus

Ref: EY-000003280-01
3
EY Corporate Finance
 Debt Advisory insight

Retail bond example: LendInvest

Overview Group structure
► LendInvest issued a £50m retail bond on 10 August 2017 to fund growth in its Guarantee
LendInvest Ltd
Bridging ad Buy-to-Let lending portfolio
► The £50m target was raised within two weeks, c. 30% of which from 100% 100%
institutional investors
► The security takes the form of a first floating charge over a separate SPV Bond issuer:
Other subsidiaries
called LendInvest Secured Income PLC, and guaranteed by the parent group LendInvest Secured
of LendInvest Ltd
company LendInvest Limited Income plc

Terms of the retail bond Eligibility criteria

Issuer LendInvest Secured Income plc Security Registered legal charges (max 10% second charges)
Guarantor LendInvest Ltd
Max LTV
Redemption Single redemption date • Max 1st charge LTV: 82.5%
(including
• Max 2nd charge LTV: 70%
Early capitalised fees)
Modified Spens
redemption
• £3m if secured against single property, or;
Term 5 years Max loan size
• 10% of all Notes outstanding if secured against multiple properties
Coupon 5.25% (semi-annual) Loan purpose Unregulated Bridging and Buy-to-Let only
Arrangement
1.5% • Full RICS valuation
fees
• Secured on freehold or leasehold property (if leasehold, must have at least
Security Floating charge over assets of lendInvest Secured Income Plc 50 years remaining)
Property
• Located in England or Wales
• Weighted average LTV ratio ≤75% • Residential, mixed use and commercial properties
• Buy-to-Let restricted to 10% of notes outstanding • No non-standard construction properties
• Total value of the assets which in aggregate make up the security will be at
Covenants
least equal to 97.5% of the nominal amount of the bond after 12 months, • Transfers at par with interest credited for period funded
(tested quarterly)
and 100% after 15 months • Loans funded through bond proceeds must comply with eligibility criteria
• Interest receivable by the issuer on eligible loans to exceed the interest Transfers
• The portfolio pre and post transfer must also comply with the criteria
payable to bondholders by a ratio of 1.2:1 • Any transfer must not worsen the arrears position of the Portfolio
Settlement Euroclear, CREST, Clearstream
Borrowers Individuals and corporates
Market Main Market of the London Stock Exchange, ORB
Single borrower
Max of £5m or 10% of all Notes outstanding
Transferability Can be traded using the Order Book for Retail Bonds limit
Subscription Min. subscriptions £2,000; £100 denominations • Not bankrupt for at least 36 months
Credit history • No secured arrears in last 36 months
Use of proceeds Origination of Bridging and Buy-to-Let loans
• All County Court Judgements cleared at completion

Ref: EY-000003280-01
EY Corporate Finance 4
 Debt Advisory insight

Mini-bond example: Wellesley

Overview
► The aim of the Wellesley mini-bond was to provide additional operating capital
for secured lending and business expansion
► Minimum raise condition of £100,000, and a maximum of £25m for Series 1,
and up to £100m through all funding rounds
Terms of the retail bond
► Investors can be UK based (excluding Channel Islands) individuals,
companies, charities and corporations. Can be placed into in a Self-Invested Issuer Wellesley Finance Plc
Personal Pension (SIPP)
Guarantor None
► The investor must be a high net worth investor and a sophisticated investor or
restricted investor as defined by FCA COBS rule 4.7.7 Redemption There are three available terms and an early redemption ability
► The funding from the mini-bond is used in combination with existing funding
Early
from sister company Wellesley & Co Limited, which is a Peer-to-Peer lending Right to redeem all or part of the bond after the first anniversary of issue
redemption
platform
Term 3 year 4 year 5 year

Eligibility criteria Coupon 6.0% (Semi-annual) 6.5% (Semi-annual) 7.0% (Semi-annual)

► There are no specific requirements as to where and how the money is to be
used, therefore, making it a flexible funding source for Wellesley Arrangement
n/a
fees
► Although it can be used for secured lending, there is no eligibility criteria for
the loans originated using the facility Security Unsecured

Group structure
Covenants • No specific covenants
Wellesley Group
(UK) Limited

100% 100% Settlement n/a

Market No market available

Transferability Not transferable and cannot be sold or traded

Bond issuer:
Other subsidiaries
Wellesley Finance Subscription £100 minimum and thereafter in multiples of £1, maximum of £25m
of Wellesley
Plc
To provide additional operating capital for secured lending and business
Use of proceeds
expansion

Ref: EY-000003280-01
EY Corporate Finance
 Debt Advisory insight

Crowdstacker example: Amicus

Group structure
Overview
Bond issuer:
► Amicus used the Crowdstacker platform to raise a target £10m debt to fund the
Amicus Finance plc
expansion of their loan book size in the bridging market
► Amicus set a target of £10m to be raised by retail investors, which were sourced
100%
using both Crowdstacker’s existing client base
► Funds were raised at a rate of £0.5-1m per month, and were made instantly SPV for HSBC
funding
available for Amicus to lend
Restrictions
Terms of the retail bond
► Amicus is not able to borrow from directors, officers, members, partners
shareholders or any other third party that ranks in priority of this loan Issuer Amicus Finance plc
► Amicus is not able to enter a new borrowing arrangement that would exceed Guarantor None
30% of the total amount lent to the borrower through the Crowdstacker platform Redemption At maturity date, however early redemption is possible
without prior written consent from Crowdstacker Early Early redemption allowable, but the entire loan amount must be repaid and a
redemption repayment charge may be applied as defined in the key commercial terms
Term 12 months 18 months 36 months
Eligibility criteria for funded bridging loans
5.43% (quarterly or 6.39% (Quarterly or
Coupon 4.32% (Annually)
annually) annually)
Security First or second charge mortgages • £20k setup fee
Arrangement
• Success fee of 2.5% of the gross funds and payment processing fee of 1%
fees
• 0.5% admin fee on an annual basis
Max LTV 70% First charge debenture over Amicus Finance plc (including c. £45m loan
Security
receivables)
Covenants No specific covenants
Max loan size n/a
Settlement n/a
Market Crowdstacker offer a secondary market, but no public marketplace
Property 90% Residential, 10% Commercial Can transfer between Crowdstacker bonds on the secondary market, however
Transferability this is currently limited due to the limited bonds currently issued by
Crowdstacker
Term 6-18 months Minimum investment amount of £1,000 with special terms available if
Subscription
exceeding £150k

Crowdstacker Use of proceeds Expand bridging loan book and for working capital
Crowdstacker has right to review and get influence any changes that are made
influence on
to the eligibility criteria
criteria

Ref: EY-000003280-01
EY Corporate Finance 6