[KanjorskiPartners]

Before COVID set in, our market information told us that default rates were right around 55% on average MCAs and that net charge off rates after recoveries were in the 24% to 25% range on average for public and private companies. Does anyone on here have insight into these numbers that are drastically more or less? Currently, some of the lenders we refinance out of cap stacks at closing are reporting 70% to 85% default rates right now.

[skideeppow]

you are clearly wrong on this number. At 55% default rate, no one would be lending.
Defaults should be from 6-9% industry wide.

[Michael I]

What you will learn is books are legally fudge.for example some funders will put someone on a 50 a month payment just not to call him a default and some funders call a default if a guy misses one payment .
Are you referring to the defaults what percent the funders get back?
Average default rate for most companies is like sidekeeepoo wrote 8%

[KanjorskiPartners]

Skideeppow,

I'm not talking about net charge off rates or net loss rates but default rates.

[KanjorskiPartners]

Michael I,

I am referring to default rates. Default where borrower fails to remain current on their loan. Default rate prior to cures, payment alterations and/or net collection recoveries. For instance after net collection recoveries and sales of charged-off paper (90 days or more delinquent), OnDeck reported 13.6% net charge off rate for 2019 in their 2019 issued 10K.

[KanjorskiPartners]

[WestCoastFunding]

Defaults are going to skyrocket. The economy is surviving off of people’s built up funds. All that disposable income is about to vanish and consumer spending is going to crash.

[Winning]

Defaults are going to skyrocket. The economy is surviving off of people’s built up funds. All that disposable income is about to vanish and consumer spending is going to crash.

Yep.. I have never, not paid a bill in my life. And I think I am going to default on a advance I am currently in. I am curious how the lender is going to deal with the situation and what options they will present me when I tell them I I am fresh out of funds due to shelter in place.

[KanjorskiPartners]

Hell yes West, JP Morgan reported that small business owners under $5mm in top line rev only have two weeks of cash left and that was last week. Mercahnt Cash Companies underwrite based on cash flow and the cash flow is gone.

[KanjorskiPartners]

Subprime (BHPH) auto loan default rates pre-COVID were right around 55-60% default rate and net charge offs 30-33% for strictly subprime portfolios. I imagine that MCA default rates and net charge offs are going to be more than that. MCAs are not much more than subprime loans based on and thriving on cash flow only.

[skideeppow]

This is some scary ****.

[WestCoastFunding]

Hell yes West, JP Morgan reported that small business owners under $5mm in top line rev only have two weeks of cash left and that was last week. Mercahnt Cash Companies underwrite based on cash flow and the cash flow is gone.

Two weeks is exactly when the tipping point will happen. Actually, next Friday. So many businesses are hanging on a thread, unable to make payroll. They’ve had some loyal employees working with delayed paychecks who just won’t be able to do it anymore and will walk away and file for unemployment. If the PPP doesn’t deliver for these companies the whole thing will come crashing down.

[matt.estes]

@KanjorskiPartners - I've always understood baseline net charge-off rate for deep subprime to be ~25% (i.e. Fundry).

So average across industry (i.e. average across near bankable to subprime) I should think would be much lower. But coming from BlueVine where customers are often near bankable, my view may be a bit skewed.

Also - depends on how you're defining "MCA". I'm assuming you're including all alternative lenders' fixed-daily / fixed-weekly loans, etc.

[KanjorskiPartners]

West this is certainly the tipping point coming. I can't agree with you more. Its the opposite of cash not coming out of ATMs during 2009. Nothing going into the ATM or to the counter. The music is going to stop next Friday and there are no chairs in sight.

Matt... I am defining MCA as the blend of A to D paper (MCAs underwritten by cash flow via bank statements) across the US funded with MCA products as if the entire US. Maybe 6% A, 14% B, 50% C & 30% D seems like the quality range in a global US MCA cash-flow based advance in the US right now. We estimate it to be in the $15B range right now could even be higher. Underwriting based solely on cash flow is getting their ****s handed to them right now.

[KanjorskiPartners]

An Yes Friday the 17th is the date and everyone wonders why Trump was asking for an Easter restart to the economy originally...hmmmmmmm

[FCF Fund]

Industry default rate is 10-25%, I would say mid teens is the real average. Single digit default in this specialty finance niche is a unicorn.

This business is built on continuous funding replacing non performing notes with new performing notes offsetting true default rate, the moment the velocity of sales slow you will see defaults rise and wash a bunch of funders out, like now.

For instance, ODC use to have some tight UW but depending on what channel you work with them on they fund almost anything, Ive gotten a 18mo 4th position loan done with them on a construction company. They need to fund or they go belly up.

[fundingsmbs]

this is why securitization has helped those who sell off blocks of assets no? who holds the risk when these transactions are done? the lender just services them but off its balance sheets. if im a vestor more likely nobody ever told me the above data before i bought into vesting.