Fred93 blog - Prosper.com is near bankruptcy

[ira01]

From p.5 of the prospectus...

Accordingly, in the event of a bankruptcy or similar proceeding of Prosper, the relative rights
of a holder of a Note, as compared to the holders of unsecured indebtedness of Prosper are
uncertain. To limit the risk of Prosper’s insolvency, Prosper will grant the indenture trustee a
security interest in Prosper’s right to payment under, and all proceeds received by Prosper on,
the corresponding borrower loans and in the bank account in which the borrower loan
payments are deposited. The indenture trustee may exercise its legal rights to the collateral
only if an event of default has occurred under the indenture, which would include Prosper
becoming subject to a bankruptcy or similar proceeding. Only the indenture trustee, not the
holders of the Notes, will have a security interest in the above collateral.

...the hedge is to ask Prosper or the trustee to offset the payments being made on your loans with what you owe on the "hedge loan".

If they won't offset, then the hedged borrower just stops paying on the Hedge Loan and keeps the money to offset the portfolio losses.

but the borrowing side is an asset of Prosper and could be sold to another entity, so you would end up owing money to a new creditor, but no longer having the benefit of an income stream from your Notes.

Both the Hedge Loan that you owe and the Notes that you are due payments from would be sold to this entity, so that entity can do the offset.

There is no chance in hell that they are going to allow an offset.  The bottom line is that if you don't pay the "hedge" loan, regardless of whether you are collecting on your own portfolio, you will get reported to the CRAs, your loan will be subject to whatever collections activity are done, you could be sued (not that you probably would), your loan could be sold to a JDB, etc.  You can call your scheme whatever you want, but it still boils down to "if I get stiffed, I'm stiffing everyone else."  That is no different than the dozens of blenders who stopped paying on their own loans.

[JammingJAY]

From p.5 of the prospectus...

Accordingly, in the event of a bankruptcy or similar proceeding of Prosper, the relative rights
of a holder of a Note, as compared to the holders of unsecured indebtedness of Prosper are
uncertain. To limit the risk of Prosper’s insolvency, Prosper will grant the indenture trustee a
security interest in Prosper’s right to payment under, and all proceeds received by Prosper on,
the corresponding borrower loans and in the bank account in which the borrower loan
payments are deposited. The indenture trustee may exercise its legal rights to the collateral
only if an event of default has occurred under the indenture, which would include Prosper
becoming subject to a bankruptcy or similar proceeding. Only the indenture trustee, not the
holders of the Notes, will have a security interest in the above collateral.

...the hedge is to ask Prosper or the trustee to offset the payments being made on your loans with what you owe on the "hedge loan".

If they won't offset, then the hedged borrower just stops paying on the Hedge Loan and keeps the money to offset the portfolio losses.

but the borrowing side is an asset of Prosper and could be sold to another entity, so you would end up owing money to a new creditor, but no longer having the benefit of an income stream from your Notes.

Both the Hedge Loan that you owe and the Notes that you are due payments from would be sold to this entity, so that entity can do the offset.

There is no chance in hell that they are going to allow an offset.  The bottom line is that if you don't pay the "hedge" loan, regardless of whether you are collecting on your own portfolio, you will get reported to the CRAs, your loan will be subject to whatever collections activity are done, you could be sued (not that you probably would), your loan could be sold to a JDB, etc.  You can call your scheme whatever you want, but it still boils down to "if I get stiffed, I'm stiffing everyone else."  That is no different than the dozens of blenders who stopped paying on their own loans.

Prosper could also do all of the above but they don't.

[Senator]

...becoming subject to a bankruptcy or similar proceeding.

What proceedings are similar to bankruptcy?

[mothandrust]

You can call your scheme whatever you want, but it still boils down to "if I get stiffed, I'm stiffing everyone else."  That is no different than the dozens of blenders who stopped paying on their own loans.

"Everyone else" does not get stiffed--that's the beauty of it!

If Prosper stops passing through payments, "everyone else" is getting nothing from their entire portfolio.

So how is the lender "stiffed" by a Hedger?  The amount he receives is identical if the Hedger stops paying or continues to pay.

[ira01]

You can call your scheme whatever you want, but it still boils down to "if I get stiffed, I'm stiffing everyone else."  That is no different than the dozens of blenders who stopped paying on their own loans.

"Everyone else" does not get stiffed--that's the beauty of it!

If Prosper stops passing through payments, "everyone else" is getting nothing from their entire portfolio.

So how is the lender "stiffed" by a Hedger?  The amount he receives is identical if the Hedger stops paying or continues to pay.

There are at least two answers to that.  First, payments might be escrowed for a while, until it is sorted out who should receive them.  You have no right (legal or moral) not to pay on your "hedge" loan regardless of whether you are receiving payments on your loans.  Second, it may well be the case (with Prosper 3.0 loans) that the "lenders" aren't the ones legally entitled to the payments on your "hedge" loan -- Prosper's other creditors may well have priority for some or all of those payments.  So you will be stiffing them.  It is like the deadbeat CB folks who claim that they have no obligation to pay JDBs who bought their loans from the original creditors.  Of course, that is just self-serving nonsense; the same as your hedging plan. 

[mothandrust]

Ira, what if you had done $2000 in legal work for a department store, and you also had made $2000 in purchases using the store's credit card (all done in-house), and then the store goes bankrupt.

You invoice them for the $2000 in legal fees, but you get no money and will be months or years before you even know how much (if anything) you'll receive.

Then the store sends you a credit card bill for the $2000 you owe.

Do you pay off the entire $2000 balance in full, make payments on the credit card, or do you do something else?

[bamalucky]

Moth I hope you aren't comparing that scenario to prosper because it isn't even close

[ira01]

Ira, what if you had done $2000 in legal work for a department store, and you also had made $2000 in purchases using the store's credit card (all done in-house), and then the store goes bankrupt.

You invoice them for the $2000 in legal fees, but you get no money and will be months or years before you even know how much (if anything) you'll receive.

Then the store sends you a credit card bill for the $2000 you owe.

Do you pay off the entire $2000 balance in full, make payments on the credit card, or do you do something else?

I know what I wouldn't do -- fail to make the payments on my credit card due to the unconnected matter of the store not paying me. 

[bankomatic]

With cash in the bank from a new large investment, and new management, I might even become a customer again.

The current management has failed. Throw them out and put someone who knows what they are doing. I can't believe people continue to give them money. How many 2nd chances do you need -- it's been 4 years now.

[Fred93]

That's what I was trying to say ... as politely as possible.

[MatthewDP]

Contacted Prosper PR for a statement about Fred93's analysis...so far nothing back.

[NewHorizon]

Contacted Prosper PR for a statement about Fred93's analysis...so far nothing back.

You sent Email to Tiffany, I assume?
Earlier, she had mentioned to me that her address was "open to all".
But if you used that address and got no reply, I don't know what her point was...

[112233]

That's what I was trying to say ... as politely as possible.

go ahead fred, throw in some cuss words next time. you are definitely earned the right to hurl a few in prosper's direction.

[JammingJAY]

That's what I was trying to say ... as politely as possible.

go ahead fred, throw in some cuss words next time. you are definitely earned the right to hurl a few in prosper's direction.

+1

I'm not above though....

Lazy bastards.

[MatthewDP]

Contacted Prosper PR for a statement about Fred93's analysis...so far nothing back.

You sent Email to Tiffany, I assume?
Earlier, she had mentioned to me that her address was "open to all".
But if you used that address and got no reply, I don't know what her point was...

Yes - emailed to Tiffany. She said she'd get back to me soon though...