DBS

61 ROCKPOOL LOAN NOTE INVESTMENTS ABOUT ROCKPOOL Set up five years ago, Rockpool has attracted £250 million from private investors, using a mix of EIS equity and debt based offerings to fund 50 companies so far. Rockpool targets profitable and asset- rich businesses with a sustainable competitive advantage and strong management. Loans generally pay 8-10% interest over a 3-5 year term and either come with asset security or a free share in the borrower’s equity. The firm offers in-depth information on each company as they become available for investment. It also provides quarterly reporting on each company, with online access to valuations, tax information and returns analysis. This demonstrates a strong commitment to transparency. Investors choose either the Self-select approach, selecting individual loans in a similar way to using a P2P platform, or a Managed portfolio, in which case the investor sets risk profile and required diversity, leaving Rockpool to allocate their investment as suitable loans become available. DEBT BASED SECURITIES OFFER Rockpool’s Managed Loan Portfolio Service is an evergreen offering, expected to attract £40 million in 2017/18. Investors set their own diversity, depending on their preference for diversity versus speed of deployment, and will be able to access up to 10 loans during the year. The minimum application is £10,000 and the minimum loan size is £2,500. The investment objective is to earn gross annual cash interest of around 8% on deployed cash plus “free” equity shares adding around 12% to the IRR over 4 years. Factoring in default risk gives a target return of 12% per annum on a typical portfolio. Capital is expected to be returned in 3-5 years. Investors will be beneficial owners of loan notes issued by each borrower and held by Rockpool’s nominee company on their behalf. Rockpool can facilitate matched bargains but most investors should expect to hold each loan to maturity. Rockpool investors backed Airedale Catering Equipment with a £2.2 million loan in early 2013. This was part of a £3 million management buyout and growth funding package. One of the UK’s leading commercial kitchen installers, Airedale was producing over £1 million annual operating profits on £18 million turnover and was growing strongly under a dynamic management team. The loan was used to pay out exiting shareholders, with Rockpool providing EIS capital to drive growth. The business doubled its revenues over the next three years, including the effect of an acquisition designed to strengthen its maintenance service offering. Rockpool helped by sourcing an independent chairman for Airedale from its investor network, a valuable addition to the management team. Investors received interest at 10% per annum every six months until the loan was repaid in full in April 2016, and still hold “free” equity worth around 25p per £1 of original investment. CASE STUDY AVERAGE INVESTMENT PER INVESTOR (£,000) 2013 2015 2014 2016 £8 1 £61 £54 £47 RISK ADJUSTED RETURNS – GROWTH LOAN PORTFOLIO Average size of each person’s investment per loan is decreasing over time. This reflects a widening of the investor base, as this asset class is becoming more established. The combination of high interest rates and a share of equity gains deliver attractive returns on a portfolio of growth loans across a range of risk assumptions. Modelled investor returns (IRR) for a portfolio of 5 growth loans over 5 years UNDERPERFORM CENTRAL STRETCH 20% 16% 12% 8% 4% 0% assumes 1 good & 3 underperforming loans assumes 3 good & 2 underperforming loans assumes 4 good & 1 underperforming loans