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LendingClub is carrying more than $5 Billion in loans on its balance sheet [1]. That means $5 Billion still owed to Lending Club by retail borrowers. At an aver

LendingClub is carrying more than $5 Billion in loans on its balance sheet [1]. That means $5 Billion still owed to Lending Club by retail borrowers. At an average of, say, $20,000 [2] per loan, that is 250,000 borrowers. That same $5 Billion is owed by Lending Club to lenders. A portion of the lenders are institutions. The remainder are also at the retail level. I don't know the average amount loaned per investor, but I'd guess there are more than 100,000 lenders. Contractually, through Lending Club in the middle, those hundreds of thousands of borrowers owe the hundred thousand lenders that $5 Billion, which will be paid off over (at most) 5 years. As the middle-man, Lending Club collects about 1% in fees. That is $50 million in fees outanding. If Lending Club ceases operation, that $5 Billion is still contractually owed by the borrowers to the lenders. In Lending Club's prospectus, under bankruptcy or if they become unable to process loan payments, the whole thing transfers to a trust, 'Portfolio Financial Servicing Company (“PFSC”)'[3] to continue collecting from borrowers and paying lenders. This is shaping up to be a pretty interesting situation. If legal expenses, ballooning compensation and declining loan origination revenues eat up Lending Club's cash and drive them to bankruptcy, a bankruptcy court judge is going to have to decide on the fate of these hundreds of thousands of Lending Club customers. Is there a precedent for this? Would a fail-over to PFSC definitely happen? Is it possible a judge could rule that money being paid back by borrowers is to be used to pay off LC stock holders, should shareholder lawsuits prevail? [1] https://www.google.com/finance?q=NYSE%3ALC&fstype=ii&ei=vzI7V7mxIeGqiQKLrblg https://www.google.com/finance?q=NYSE%3ALC&fstype=ii&ei=vzI7... (select Balance Sheet) [2] I don't know the actual average, but the max is $35,000. The average may be much lower since many loans are paid down below $10k already. [3] http://kb.lendingclub.com/investor/articles/Investor/What-happens-if-Lending-Club-goes-out-of-business http://kb.lendingclub.com/investor/articles/Investor/What-ha...

akg_67 10y ago
> the whole thing transfers to a trust, 'Portfolio Financial Servicing Company (“PFSC”)'[3] to continue collecting from borrowers and paying lenders. The "paying lenders" part is partially correct. Only the Lenders that are part of LC Trust I, Lending Club Advisors (LCA), and one another entity (name escapes me at the moment) will get paid as these entities are Bankruptcy Remote Vehicle (BRV). As I mentioned in another comment, the Retail Lenders don't have any BRV protection so they will be considered unsecured creditor of Lending Club. As debt is senior to equity, debt holders will get paid before equity holders. The unsecured creditor is subordinate to any senior debt holder, the retail lenders will be last one to be paid before equity holders. Source: Read the SEC Filings - prospectus and 10-K. Also from your PFSC link: "If the underlying loans are determined to be part of Lending Club’s bankruptcy estate, PFSC may not be able to make payments on the Notes."

akg_67 10y ago

> the whole thing transfers to a trust, 'Portfolio Financial Servicing Company (“PFSC”)'[3] to continue collecting from borrowers and paying lenders. The "paying lenders" part is partially correct. Only the Lenders that are part of LC Trust I, Lending Club Advisors (LCA), and one another entity (name escapes me at the moment) will get paid as these entities are Bankruptcy Remote Vehicle (BRV). As I mentioned in another comment, the Retail Lenders don't have any BRV protection so they will be considered unsecured creditor of Lending Club. As debt is senior to equity, debt holders will get paid before equity holders. The unsecured creditor is subordinate to any senior debt holder, the retail lenders will be last one to be paid before equity holders. Source: Read the SEC Filings - prospectus and 10-K. Also from your PFSC link: "If the underlying loans are determined to be part of Lending Club’s bankruptcy estate, PFSC may not be able to make payments on the Notes."