Argon Credit files for chapter 11 bankruptcy

Argon Credit files for chapter 11 bankruptcy

Argon Credit, after securing a $75mil line of credit in May 2015, filed for bankruptcy on Dec 16th 2016. The bankruptcy seems to have been triggered by a spike in defaults due to the transfer of the servicing function to a 3rd party. Argon’s main differentiator was touted to be a “dedication to Big Data” and […]

Argon Credit files for chapter 11 bankruptcy

Argon Credit, after securing a $75mil line of credit in May 2015, filed for bankruptcy on Dec 16th 2016. The bankruptcy seems to have been triggered by a spike in defaults due to the transfer of the servicing function to a 3rd party.

Argon’s main differentiator was touted to be a “dedication to Big Data” and was offering consumer installment loans. On Dec. 16 it filed for protection under Chapter 11 of the U.S. Bankruptcy Code.

As reported by Tim Zawacki :

“Chicago-based Argon Credit LLC co-founder and CEO Raviv Wolfe said in a bankruptcy court declaration that “liquidity issues” caused the company, which offers 12- to 60-month loans in amounts ranging from $2,000 to $35,000 to borrowers with credit scores above 540 at annual percentage rates of between 19% and 95%-plus, to miss a payment under a $37.5 million credit facility.

The issues emerged in the aftermath of a spike in loan defaults that transpired during a time in which it had transferred servicing functions to a third party.

“The Debtors need the brief breathing spell provided by this bankruptcy case to restructure its indebtedness to the Senior Lenders and vendors and preserve value for all stakeholders,” Wolfe said.

Fintech Financial LLC and Princeton Alternative Income Fund LP, Argon Credit’s senior lenders, have asserted liens in substantially all of the company’s assets following the payment default.

Argon Credit and Fintech Financial entered a $20 million loan and security agreement in May 2015. Fintech and Princeton then entered a master assignment of loans agreement regarding the periodic transfer of rights to the loan referenced in the loan and security agreement. The amount of the revolving facility was twice increased, most recently in February.

Argon Credit issued a release in May 2015, saying that it entered a $75 million debt facility with a “credit hedge fund” for the purposes of facilitating the acceleration of its growth in near-prime and prime consumer loan originations through its online platform.

“The demand of the consumer has outgrown the ability of the commercial banking industry, and opportunistic lenders that attract and retain these clients will find great success in this new marketplace,” Wolfe said in that release.

The company touted its “dedication to Big Data,” analytics capabilities and management’s background in the mortgage industry as advantages in managing risk and developing “innovative” solutions. It relies on “proprietary algorithms” to make decisions on loan applications and to identify the relevant risks. As part of the negotiations on the credit line, Wolfe said Argon Credit engaged an unnamed third party to service the company’s portfolio to permit it to focus on improving back-office functionality, decreasing lead times and improving efficiencies through better automation.

“However, after the Loan Servicer started to service the Debtors’ portfolio, problems began to appear with regularity including a) refinancing or loan increase requests would take at least three weeks to process, well beyond the lead times previously provided to customers by the Debtors, b) first payment loan default rates soared from 4% to 12% as life of loan projected default rates increased from 24% to 34%, c) customers who had consistently made 8-10 payments stopped paying, and d) a significant number of new customers failed to make a first payment in spite of the Debtors’ underwriting guidelines remaining unchanged,” Wolfe alleged.

Argon Credit brought the servicing function back in-house in September, and Wolfe said default rates on the portfolio have since “meaningfully” declined. A review of Argon Credit’s Chapter 11 petition finds that the company has more than $41 million in unsecured claims, including nearly $37 million associated with the Princeton fund that it classified as contingent, unliquidated and subject to setoff.

The company also included claims of $1.9 million by Fintech Financial and a $1.2 million claim by St. Petersburg, Fla.-based Peraza Capital and Investment LLC. Wolfe indicated that Princeton’s Dec. 7 notice of default stated that an Argon Credit affiliate failed to provide “full and accurate financial information” under the loan agreement.

Princeton has assigned its rights in the agreement to Fund Recovery Services LLC, he added. Argon Credit maintains a loan portfolio with net value of more than $36.5 million, Wolfe said. In addition, the company said it is holding approximately 300,000 leads with a potential aggregate value of at least $5.5 million. Wolfe said Argon Credit’s loan issuing and servicing platform “can be sold as a ‘turn key’ operation” and/or used for the purposes of third-party loan servicing. But Wolfe warned that the transfer of the servicing function to an outside entity would negatively impact the market value of the loan portfolio “by at least 20%” as a result of the “significant interruption to borrower repayments” that would occur.

Through the Chapter 11 process, Argon Credit will seek to stabilize its operations and demonstrate to vendors that it can still operate in a profitable manner, including through a proposal to make monthly payments to its senior lenders toward accrued interest at a non-default rate. Wolfe said Argon Credit generated total revenue of more than $6.1 million in 2015, up from less than $137,000 in 2014.

From the time of the company’s 2013 inception, Wolfe said, its origination volume has exceeded $50 million, with a customer base largely comprising “near-prime” borrowers who have “limited access to credit.”

Before Avant, there was Enova

Before Avant, there was Enova

( Interview taken at LEND360 on October 6th 2016) Enova International was founded in 2004 by Al Goldstein and is headquartered in Chicago. Enova is now a public company. Al Goldstein, who is also the founder of Avant, was an investment banker with Deutsche Bank. He founded the company under the name of CashNet USA […]

Before Avant, there was Enova

( Interview taken at LEND360 on October 6th 2016)

Enova International was founded in 2004 by Al Goldstein and is headquartered in Chicago. Enova is now a public company. Al Goldstein, who is also the founder of Avant, was an investment banker with Deutsche Bank. He founded the company under the name of CashNet USA and grew it to $200 million in revenue. It was bought by Cash America for $250 million in 2006 and was renamed Enova International. In 2014, Cash America decided to spin off Enova via an IPO.

Balance Sheet Lender

Enova has been a balance sheet lender ever since its inception, but now in its effort to diversify and grow it has struck a deal worth $175 million with Jefferies LLC. The deal will provide financing facility for its NetCredit installment loan portfolio. This is Enova’s first asset- backed securitization and is a big milestone for the lender. It has its foothold in 6 different countries and provides services via 11 different brands. Most of the products and services are directed towards consumers but it also has 2 brands that focus on SME and 1 is focussed on analytics side of the business. Numbers posted by the company is a testimony of its growing stature in the fintech industry. It lent $500 million in the second quarter alone across all the brands and generated $700 million in revenues and $150 million in EBITDA in 2015.

35% APR +

Enova offers a wide range of products, ranging from 35% APR loans to high-interest rate payday loans and that’s what give Enova a competitive advantage over its rivals. Al Goldstein after selling his first venture has started Avant, another fintech company that offers some products which are in direct competition with Enova International. But its real competitor is Elevate which offers many products in the 35% -400% APR bracket.

Selling analytics models

Sean Rahilly has joined as CCO. Sean is an expert in regulatory compliance and legal framework. He also helps in developing and deploying new models for data science and analytics team. The latest model he deployed was Colossus host model. Under his supervision, the company has launched an analytics brand late last year, which provides analytics service for the lender and its verticals. It will also help in decision management, prediction analytics, business rules, and optimization. Direct competition for this brand is GDS link, a decision management solution provider. Enova’s bouquet of services is much more comprehensive than GDS which is a niche player in verification and fraud services.

The company’s services platform division is supported by the fact that the parent company has lent $2 billion on the same infrastructure. Enova does not charge any minimum for its platform services, it charges per transaction or based on business KPI or stats performance indicator of the model. This helps young companies and corporate to try out its services before committing to a huge fixed cost.  Each model is built according to the needs of the customer, no two models are similar. It is essential that the company avoid any conflict of interest and so doesn’t offer its services to close competitors.

CFPB

Marketplace lending has been hobbled by regulators in markets like Canada. CFPB regulations will surely have a huge impact on Enova and the entire industry ecosystem. The company was fully prepared when FCA(the UK regulator) released its rules. All of its 3 brands in the UK have FCA authorization and result is those individual brands have dominated their category in the UK market. In its pursuit to diversify and expand, it has launched new products in Brazil, has acquired an SME lender in Cincinnati. It already had one SME brand and now it has launched another one, it is expecting big things from all the brands as all of them are out of the pilot stage. Enova Decision is looking to be a big player in decision management space. Decision management solution is still at nascent stage across all the industries and that includes fintech as well. Being a pioneer in Fintech and online lending, the platform offered by Enova should be a unique value proposition for its clients.

A group of companies and brands

The marketplace lending ecosystem has evolved to include multiple start-ups in sub-segments like analytics, platform-as-a-service, securitization, marketing, verification, fraud detection and other allied verticals. Enova has also metamorphosed from a vanilla balance sheet lender to a group of firms focussing on different regions and myriad services. Its continuous growth in non-legacy businesses indicates that it has been able to overcome the inherent conflicts of interest to become a partner of choice for start-ups and corporate. The company has invested in and launched new verticals which can be future unicorns on their own. It’s listed status and balance sheet size give it a massive opportunity to dominate the fintech category for years to come.

Author: Heena Dhir and George Popescu

George Popescu