Prosper Funding LLC ("PFL") is a new company which is wholly owned by Prosper Marketplace Inc ("PMI").PFL S-1
: http://www.sec.gov/Archives/edgar/data/1416265/000114036112052353/forms1a.htmPMI S-1
PFL has been organized and will be operated in a manner that is intended to minimize the likelihood that it will (i) become subject to bankruptcy proceedings or (ii) be substantively consolidated with the Company [PMI], and thus have its assets subject to claims by the Company’s [PMI's] creditors, in the event the Company [PMI] becomes subject to a bankruptcy proceeding.
PMI formed PFL specifically to shield assets from PMI's potential bankruptcy.
The Company [PMI] intends to restructure its platform so borrower loans are held by PFL and PFL issues and sells the borrower payment dependent notes tied to the loans.
Once PFL is up and running, PMI intends to no longer issue any borrower dependent notes, but instead have PFL doing all of that stuff.
[...] the Company [PMI] intends for PFL to assume all outstanding Notes issued by the Company.
PMI intends to transfer all of its notes (current and future) to PFL up until the time that PFL starts directly releasing its own notes instead. As stated earlier, this is specifically with the intent to shield/hide all of the existing notes from a potential upcoming PMI bankruptcy.
Prior to February 1, 2013, we [PMI] will enter into an Asset Transfer Agreement (the “Asset Transfer Agreement”) with Prosper Funding pursuant to which we [PMI] will (i) transfer the platform and substantially all of our assets and rights related to the operation of the platform to Prosper Funding and (ii) make a cash contribution to Prosper Funding of between $3 million and $6 million.
Under the Asset Transfer Agreement, we [PMI] will also transfer substantially all of our [PMI] remaining assets to Prosper Funding, including (i) all outstanding Notes issued by us [PMI] under the Indenture (the “Indenture”) dated June 15, 2009 between us and Wells Fargo Bank, as trustee (the “Trustee”), (ii) all borrower loans held by us, (iii) all lender/borrower/group leader registration agreements related to our Notes or our borrower loans and all other agreements entered into with our lender and borrower members or delivered to us by any of them, (iv) all documents and information related to the foregoing, and (v) the accounts of PMI held at the Trustee for the benefit of holders of Notes.
PMI isn't just going to transfer the notes to PFL, they are transferring almost everything
in an attempt to hide it all from a potential bankruptcy.
In the Asset Transfer Agreement, we [PMI] will agree, among other things, to:
- fund any repurchase obligation with respect to Notes issued by us and transferred to Prosper Funding, and indemnify Prosper Funding for any other losses that arise out of any lender/borrower/group leader registration agreement related to such Notes or borrower loans transferred by us to Prosper Funding, including as a result of a breach by us of any of our representations or warranties made therein;
- fund any arbitration filing or administrative fees or arbitrator fees payable under any lender/borrower/group leader registration agreement related to Notes issued by us and transferred to Prosper Funding or borrower loans transferred by us to Prosper Funding; and
- fund any indemnification obligations that arise under any group leader registration agreement entered into by us prior to the date of the Asset Transfer.
To me, this says that even though the otherwise lifeless and empty shell which will be PMI will have essentially next to no assets, they [PMI] will be the ones on the hook for any bad things that PMI did/caused and PFL will be free and clear even though PFL has all of the assets. This just sounds like it shouldn't be legal to me.
We [PMI] will continue to service the borrower loans we transferred to Prosper Funding pursuant to the Administration Agreement between us [PMI] and Prosper Funding. Under the Administration Agreement, we [PMI] will agree, among other things, to use commercially reasonable efforts to service and collect the borrower loans we transferred to Prosper Funding and will indemnify Prosper Funding for any losses as a result of our [PMI] breach of such obligation.
So, PMI will keep the servicing rights?
Holders of Notes issued by us [PMI] and transferred to Prosper Funding will be third party beneficiaries under the Asset Transfer Agreement and the Administration Agreement.
Does this have any specific legal/financial ramifications on the existing PMI note holders?
Among other changes, the Amended and Restated Indenture will expand the scope of the security interest granted to the Trustee [Wells Fargo] for the benefit of holders of Notes to be consistent with the scope of the security interest granted to the Trustee for the benefit of the holders of the notes to be issued by Prosper Funding. Specifically, Prosper Funding has granted the indenture trustee [Wells Fargo], for the benefit of the Note holders, a security interest in the borrower loans, the payments and proceeds that Prosper Funding receives on the borrower loans, the bank account in which the borrower loan payments are deposited and the FBO account. The indenture trustee may exercise its legal rights to the collateral only if an event of default has occurred under the Amended and Restated Borrower Payment Dependent Notes Indenture for the Notes, which would include Prosper Funding’s becoming subject to a bankruptcy or similar proceeding.
So, Wells Fargo will now have a security interest in the loans, payments, and the idle cash sitting in PFL so that those things get priority before unsecured debtors in any BK.