Follow-up on our recent announcement about Notes

Recently, we shared an update on the upcoming introduction of Notes, the new financial instruments that will be available once Mintos becomes a regulated marketplace. We received a lot of interest and questions on how Notes will work. Below you can see a compilation of the most frequently asked investors questions that popped-up on our blog and in emails to Mintos Investor Service team. 

Table of contents (shortened questions):

1. “How would the buyback mechanism work? Are the Notes going to have some kind of buyback guarantee?”

The buyback mechanism will be similar to the one used currently. There will be two types of Notes available for purchase – with buyback and without buyback. The buyback mechanism for each lending company will be described in detail in the prospectuses.

2. “What will happen to the old structure of loans that are still serviced? Let’s say someone brought a 4 year loan. Under which guidelines will this loan be dealt with? How will the interests be paid?”

Notes will be gradually introduced on a lending company basis once we’re licensed. After the prospectus for Notes is approved by the regulator, Mintos will cease selling assignments for this lending company and start selling Notes. From this moment, the existing loans will gradually amortize – principal and interest will be repaid in accordance with the existing contractual terms. All existing assignment agreements will stay in force. For example, if an investor has invested in a loan a month before we introduce Notes, the investor will be able to keep the respective loan in his portfolio until it is fully amortized. After Notes are introduced for all lending companies’ originated loans and the transition period is over, some restrictions about the existing investments in assignments will start to apply – for example, investors won’t be able to place them on the Secondary Market.

3. “What Note principal amount will be paid in the end?”

It depends on the underlying loan. The payments for the Note will be contingent on the payments from the underlying loan and will depend on its schedule.

4. ”Will loan extensions still exist? In a bond market the Note holders have to agree to an extension.”

Extensions will exist in a similar way as now. The terms and conditions of Notes enclosed in the prospectuses will include the right for the lending company to extend the loan, and relevant extension limits. Relevant provisions will be described in the prospectuses.

5. “How many loans will be grouped into Notes?”

One full Note will correspond to one loan minus the lending company’s skin in the game. The experience investors currently have on the marketplace will not change.

6. “If one/several underlying loans delay payments, what happens? Partial payments? Loan extensions?”

There will be one underlying loan, it will be backing Note’s payments on limited recourse conditions. If the underlying loan is late, Note payments will also be delayed. If the buyback option is applicable to the relevant Note, loans passing 60 days delay shall be rebought by the lending company, and proceeds would be used to redeem the outstanding Note. Notes will fully reflect the payments and credit risk of the underlying loan.

7. “How are delays (either from borrowers or from the Notes’ originator) going to work: please explain how grace periods and pending payments work?”

Not much will change from the current setup and current credit risk exposure as the payments for Notes are contingent on payments from the underlying assets – loans. Grace period and pending payments will work the same as before.

8. “It would be nice to have a simplified outline with the most relevant information from prospectuses. If FCMC does not impose/suggest a model to be followed, you could draft one and ask for inputs from customers.”

The content of prospectuses is defined by EU regulations. They include significant parts like descriptions of risks, transactional overview, descriptions of the major parties participating in the issue, overview of transaction documents, and terms and conditions of the Notes. In addition to the prospectuses published and available to investors, investors will also have the current marketplace dashboard interface, containing all major business terms of the instrument. 

9. “If each Note has its own ISIN, that would create a lot of tracking numbers and documentation. How do you see investors keep up with that?”

Each prospectus will cover a specific lending company’s loans in a specific country. For example, Mogo Moldova will have one prospectus, Mogo Latvia will have a different prospectus.  

There won’t be major changes to the investor experience when it comes to the amount of documentation. Currently, each loan on the Mintos marketplace has its own Loan ID. For Notes, there won’t be a Loan ID, but an ISIN code. Similar to now, investors will be able to generate account statements, portfolio summary and other post trading documents within their profile. We will add some fields to fill in information required by the regulatory framework, yet these additions will not make investing more complex.

10. ”Are the ISIN only internal or will they be registered?”

Each individual international securities identification number (ISIN) will be provided by an external securities depositary and created  in accordance with industry and ISO standards.

11. ”When will you start with this transition? Before the Investment Firm license is granted like competitors are doing?”

Once we receive the Investment Firm licence and have developed the necessary functionalities on the Mintos marketplace. Some parts of the transition, such as the Suitability and Appropriateness assessment, will be started before receiving the Investment Firm licence. 

In the meantime, Mintos works with the regulator on multiple aspects to make the transition of Mintos into a regulated marketplace as smooth as possible to all investors. 

12. ”Can you outline the details of extension and late payments in case of crisis and lending company defaults? The interest would accumulate, but wouldn’t represent the expected amount of returns. How do you see the process here?”

Extensions and late payments will work in a similar manner as it is now – they will be an embedded feature in Notes and described in the Prospectuses. The interest will accumulate and will be shown to the investor. If the investor is willing to sell on the Secondary Market, the discount will reflect the accumulated interest.

13. ”You compare Notes to how bonds are paid back. Most bonds you get the principal back in the end. Will this be the standard here too?”

There are different ways how bonds can be amortized. In the case of Notes, it depends on the underlying loan amortization type. As Notes will reflect the cash flow of the underlying loan, the payments for Notes will be contingent on the payments from the underlying loan and will depend on its schedule.

14. ”Do you think Note security is covered by checking and updating the prospectus on a yearly basis?” 

Each prospectus will be updated once a year, according to the requirements of the EU and Prospectus Regulation. However, if there are substantial changes, a supplement for the prospectus will be created and made available to investors. 

15. “How can an investor get the time to read all the prospectus for each loan if they invest in an automated form?” 

There won’t be a prospectus for each loan. One prospectus will cover a specific lending company’s loans in a specific country. For example, Mogo Moldova will have one prospectus, Mogo Latvia will have a different prospectus.  We urge investors to become acquainted with the lending companies that are included in their strategies. Today, investors should review the relevant assignment agreements before activating a strategy. In the future, they should review the relevant prospectuses instead. So while the format may be different once we become licensed, the recommended steps for investors are not changing.

16. “For me the biggest question is: how is the interest handled in case of the Secondary Market transactions, especially say when the loan is more than 30 days late:
– The seller gets accrued interest from the buyer?
– The seller only gets the Note value, and not the accrued interest?”

All transactions will include accrued interest.

17. “At the moment, lending companies are just servicing the loans on behalf of Mintos investors. Lending companies don’t own the loans. With the new system, investors lend money to lending companies with terrible balance sheets. But maybe Mintos can tell us more?”

Before Notes are issued and sold to investors, the lending company sells loan receivables, minus the skin in the game, of the loan to the issuer, which is a Mintos group special purpose company. This leaves the lending company with only the skin in the game as part of the loan principal value. As of the moment the loan receivables are sold,  the lending company continues just to service the loan on behalf of the issuer. If the lending company experiences problems, including bankruptcy, Mintos would be entitled to enforce its rights. These rights include engaging a backup servicer to take over the loans outstanding and backing the issued Notes. The prospectus will describe the transactional setup for the Notes to be issued under the respective prospectus and the risks associated with them.

18. “The time Mintos will be regulated, Notes will replace the current agreement if I understand well. Will Notes be like bonds in the stock market? If a company that has issued a Note goes bankrupt, will my money be protected from any government authority? Will Mintos work like a stock exchange for these notes?”

Mintos will be acting as an Investment Firm managing the trading platform (marketplace), where trades, operations, and the holding of Notes will take place, having more or less the same functionality as it is now. If the Notes issuer, a Mintos group company, becomes insolvent, this means the event of default of Notes under its terms. The appointed receiver will manage assets and debts of the issuer within the insolvency procedure, so the receiver will continue to collect due sums from the lending companies (loan issuers) under the acquired claims (loan receivables) and pay them to the Noteholders on a limited recourse basis. Notes will constitute general, direct, and unsecured obligations of the private issuer, which means no third party, including any governmental authority, has guaranteed their performance.

19. “If the issuer of a Note defaults, for example here in Greece if a bond defaults you will be protected by the government for 30 000 per person at each Investment Firm. That means that if a bond here in Greece defaults and costs 30 000 you will take all your sum back. Is that the same with these Notes?”

Government secures and protects the Investment Firm risk, not the wellbeing and creditworthiness of the Notes issuer or Notes themself. In Latvia, this program to be applied is called Investors protection system and fund. This program will trigger in case of fraud by some Investment Firm, for example, in case the cash funds standing on the investors’ accounts with the firm disappear. Still, the program will not reimburse the investors if the issuer and its issued securities have defaulted.

20. ”Do these changes mean that investors who invest through a company will need a LEI code?”

For investors who operate on Mintos via legal entities, a LEI code will be required to buy or sell Notes after Mintos becomes a regulated marketplace, similar to trading other securities. We will consider the possibility to introduce a LEI code allocation service provider to make this process easier and smoother for investors. For more information on LEI codes, please see ESMA information.


Investors should remember that underlying risks of investing in Notes will still remain the same, as always.

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