Default, Recoveries and Liquidity
Given that for a variety of reasons, Borrowers may fail to meet payment obligations under a loan, it will be prudent for Investors not to incorporate the repayment of capital or any interest income receivable into their future cash-flow projections.
In the unusual event of a Borrower failing to meet a payment obligation under a loan, Lighthouse will immediately engage with the Borrower on the relevant Investor’s behalf, first to gain an understanding of the reason/s behind the non-payment and thereafter, to work constructively with the Borrower to come up with a solution. Depending on the circumstances – and the Borrower’s behaviour – this may involve the deferral of payments and/or an extension of the term of the loan.
Where it’s determined the most appropriate course of action in the Lender’s best interests is to proceed with enforcement, Lighthouse will retain legal counsel to issue default proceedings, which action will generally involve taking possession of the property over which Lighthouse holds a registered charge as security and/or making a demand for payment under any personal guarantees in place for a corporate borrower – and all of which can involve an extended period to run their course.
All such recoveries are managed by a sub-committee of the Lighthouse Credit Committee.
By their nature, loans are illiquid assets – not readily realizable or tradable on an active market.
Should an Investor wish to dispose of all or part of his, her or its performing loan (or participation therein), Lighthouse may be in a position to assist but only if another Investor is willing to acquire the position – something which cannot be guaranteed.