Print

[blue]

Curious about the difference between Old Propser notes Vs New Prosper notes and how they would be handled if Prosper was to go BK?

[pioneer11]

Curious about the difference between Old Propser notes Vs New Prosper notes and how they would be handled if Prosper was to go BK?

On the first question, the big difference is that the old notes can't be traded.  On the second question, any holder of either kind of note is -poofed in case this is moved to the lobby- in the biblical sense.

[blue]

Does a Lender 'own' the old notes? Any more protection to continue getting payments on those?

[Xenon481]

In the old days, Prosper originated a loan, split it into X number of small loans and sold the LOANS to individual lenders while retaining certain rights on the loans. These loans are fully liabilities of the borrower and not Prosper. If Prosper was to go under and didn't hand servicing rights to anybody else, theoretically you could collect on your loans.

Now, Prosper (WebBank) originates a loan and sells investors notes which are liabilities solely of Prosper and not of the borrower. If Prosper goes under, the notes are completely noncollectable past the standard distribution of Prosper's current assets. It should be noted that Prosper has prior liabilities much higher in priority than to the system's lenders and so the lenders are likely to get absolutely nothing.

Essentially, if you buy one of the new notes, what you are doing is giving a Venture Capital loan to a Prosper which is on extremely shaky financial grounds and has no way of turning a profit (let alone pay off its debt) any time in the foreseeable future. And to make it worse, there are no upsides to the VC loan and Prosper has a built in clause whereby they don't have to pay you for an investment in THEM!

[Urbi_et_Orbi]

A lot of people appear to be confused about this important point, so I'd like to nominate this thread to the lobby for further discussion.

[Mark12547]

I had maintained that, even though the Lender Agreement for the old Prosper 1.0 claimed that we own the loans, the lack of rights we had with the notes raises the question of whether we owned the notes in name only, and that it would probably take a bankruptcy judge to finally decide whether we really did own the loans or if that was just a fiction. I'm sure that those with substantial sums still in the game will hope that a bankruptcy judge would decide in favor of the lenders, or that Prosper can stay out of bankruptcy long enough for all those original loans to come to resolution. Even if the Loans (or Notes) are the Lenders' property, a bankruptcy judge can rewrite contracts that can still negatively impact Lenders. (I don't think borrowers would be affected, other than the name appearing on the direct debit transactions.)

With the latest incarnation of Prosper, it is spelled out that we don't own the loans, but rather that we are making unsecured investments in Prosper's general debt.

It seems to me then, if we don't own the new loans, no note under the latest Lender's Agreement could possibly be safer than Prosper, and most of us wonder when Prosper will fold from having too high ongoing expenses compared to income, and the SEC filings make a lot of us rather nervous about that; Prosper's own financial health is the Sword of Damocles over all the notes, even the AA notes.

[xraider]

While we technically "own" the old notes, we have no rights with respect to them, except that if Prosper closes for whatever reason, we can expect (ok hope) that the servicing rights to "our" notes would be transferred.  However, we have no other rights of ownership on the old notes.  We can't purchase defaulted notes and try to collect on them, we can't expect that our selection of collection agencies will be honored, we can't expect that Prosper will inform us of the status of collection efforts, we can't expect that Prosper will inform us of the status of bankruptcies and payments in ch 11 or 13 situations, and we can't contact the borrowers or collection agencies ourselves. 

While I don't have any new notes, it appears that the only difference is that if Prosper closes, the new notes will be unsecured assets of Prosper, and will go, first, to satisfy Prosper's secured creditors.

In other words, I fully agree with Mark.

[blue]

While we technically "own" the old notes, we have no rights with respect to them, except that if Prosper closes for whatever reason, we can expect (ok hope) that the servicing rights to "our" notes would be transferred.  ...

While I don't have any new notes, it appears that the only difference is that if Prosper closes, the new notes will be unsecured assets of Prosper, and will go, first, to satisfy Prosper's secured creditors.

In other words, I fully agree with Mark.

1) So Old notes (if servicing rights are transferred) would go to the Lender and not the secured creditors?
2) Lawyer fees aside - how much does Prosper owe to secured creditors?

[xraider]

I haven't checked the UCC or other filings to see the amount Prosper owes to secured creditors...  Has anyone done that?

[Investar]

I haven't checked the UCC or other filings to see the amount Prosper owes to secured creditors...  Has anyone done that?

I believe the creditors not including stockholders inside the company are:
   $40 convertible preferred stock
     $1 million secured warrants
     $8 million (approx) lender held derivative notes

[havastat]

If Prosper goes bankrupt, it will have breached its servicing contract. Why can't old note lenders ask the bankruptcy judge to order Prosper to disclose the identity of the borrowers so we can collect on the notes ourselves? If Prosper is no longer performing its end of the bargain, how it can it ask us to continue to perform ours? Letting Prosper keep the identity of the borrowers was so it could perform its duties for us. It doesn't own those identities.

[Investar]

If Prosper goes bankrupt, it will have breached its servicing contract.

Incorrect? They have in fact, retained third party servicing agents for both the old promissory notes we own and the new dependent derivatives we're buying, all as promised our lender contracts old and new.

[bamalucky]

If Prosper goes bankrupt, it will have breached its servicing contract.

Incorrect? They have in fact, retained third party servicing agents for both the old promissory notes we own and the new dependent derivatives we're buying, all as promised our lender contracts old and new.

New derivatives are collateral..Read up

[xraider]

If Prosper goes bankrupt, it will have breached its servicing contract. Why can't old note lenders ask the bankruptcy judge to order Prosper to disclose the identity of the borrowers so we can collect on the notes ourselves? If Prosper is no longer performing its end of the bargain, how it can it ask us to continue to perform ours? Letting Prosper keep the identity of the borrowers was so it could perform its duties for us. It doesn't own those identities.

If Prosper goes bankrupt, it isn't going to care that it breached its servicing contract to us.

Oh!  Wait!  Prosper hasn't cared about one contract it's breached with lenders yet.

[Risk_Reward]

If Prosper goes bankrupt, it isn't going to care that it breached its servicing contract to us.

Oh!  Wait!  Prosper hasn't cared about one contract it's breached with lenders yet.

New prosper slogan:

Contracts are made to be breached.