PPR Note company dropping rates on existing investments?

Question

Is anyone familiar with the current PPR situation?  I am invested in their 12% fund and they are calling it ahead of the 3 year term. They offer to roll into their 10% fund for another 3 years, but why should I believe that they will not just turn around and call the 10% fund as well?  Are they still financially sound?  This makes me a little suspicious... @Dave Van Horn ?

Dave Van Horn · Answer

Hi @Andrew S.

Apologies for any misunderstanding or miscommunication.

Perhaps our written correspondence and messaging from our Investor Relations Department didn’t explain this enough but Dan is correct.

It doesn’t make fiscal sense to continue paying such high rates in the current environment, especially with lower interest rates and access to more affordable capital.

I should also clearly state that it is a possibility we could call the 10% fund earlier than expected as well. At the beginning of the Offering documents for both the 12% and 10% offerings, it discloses that we reserve the right to redeem shares at any time with 10 days notice. Up until now we haven’t exercised that right, but we felt in pertinent to do so now to ensure the health of the fund and continue operations at maximum efficiency. Hopefully you can understand and would benefit from our 10% (or 11.6% rate with compounding) fund offering and continue working with us.

If you want to talk about it more directly, feel free to message me and I’d be happy to set up a call.

Chris Seveney · Answer

@Ned Carey - 10% can be done on a smaller scale funds (under $5M) but the manager(s) is most likely a single manager, collecting a very small management fee and no salary. When you get to the size and scale of Dave at $20M or $50M it makes it more difficult also because of potential issues deploying capital and having capital sitting on the sidelines. Along with balancing the portfolio to meet your corresponding level of risk you are willing to take.

I do want to commend @Dave Van Horn for doing this. I know other investors would try and continue to pull off the feat and cause heartache and a major impact to the investors. Something like this is not an easy decision but its the "smart" move and as an investor I would rather have them making the smart move than trying to force something (such as going out and buying high risk paper to try and get to 12% which again there are companies that would do that). This shows experience and risk aversion.

Also every PPM I have read does allow the manager to return principal and buy back shares.

Don Konipol · Answer

@Andrew S.

Interest rates have dropped at both risk ends of the spectrum, note prices are up so yields are down in the secondary market.  Not surprising that 12% money is being replaced by 10% money.  I think perhaps you didn’t read the entire PPM when you bought into the fund.  Not singling you out, a securities attorney told be that 60% of fund investors never even glance at the PPM;  20% give it a cursory screening; 15% read the parts of most interest only; and only 5% read it thoroughly.

Chad U. · Answer

I may be speaking out of turn for Dave, but I suspect that as with many of us in the note investing space they could be experiencing somewhat of a stall out on their return of capital.. This is mainly due to moratoriums and evictions put in place, that precludes investors and lenders from taking legal action against Borrowers if need be. Oftentimes this is the only Leverage you have in order to get a borrower to come to the table. Also with many foreclosure sales put on hold, that Capital invested is just sitting there like a lame duck.

add to this it seems that everyone is yield starved in this environment due to rockbottom interest rates so people are looking to park their money in higher yielding Investments. I have seen an uptick in the appetite for performing and reperforming notes with people willing to take lower yields, hence driving prices up. Therefore those with funds that pay out a certain interest rate are having a hard time filling their coffers with the higher-yielding notes.

Ned Carey · Answer

@Andrew S. Personally I would be suspicious of how anyone can offer even 10% with any degree of safety. i don't know the note business. I would certainly expect an investor like @Dave Van Horn to be able to earn those kinds of returns. I would think it very hard for fund to offer those kind of returns even if run by somebody as smart as Dave van Horn.

Keep in mind I don't know the Note business, so my two cents, isn't worth two cents.

Jay Hinrichs · Answer

@Dave Van Horn  one must adjust to meet current market conditions.. I always wondered how long will those super discounted seconds would be available at some point you have to figure they cycle through the system just like any foreclosure inventory.. ..   Just musing anyway carry on..

Caleb Heimsoth · Answer

@Andrew S. Interest rates are near zero, which means all returns on fixed income products drops.  Unless you are retired, it’s best to have equity investments at times like this.

The FED has stated that rates will remain low for several years

Dave Van Horn · Answer

@Mike Miller Just private messaged you with answers to your question.

Mike Miller · Answer

Can someone provide me with the approximate charge that note servicers charge per mo? When one buys a note (not fund) from ppr is the purchase price guaranteed? Does ppr service notes?

Dan Deppen · Answer

I'm not familiar with the specifics of what is going on with PPR, and I have not invested with them. However I can say from experience that in the current environment it would be challenging to put together a fund to deliver 12% reliably and with an acceptable amount of risk. It sounds to me like they are probably just adjusting to the realities of the current environment. Everyone I have spoken to that has invested with them has had a positive experience, and I wouldn't view the changes as suspicious.

PPR Note company dropping rates on existing investments?

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