We continue working to become an Investment Firm and implementing the necessary changes.
One of the key changes will be the underlying setup of how investors invest in loans. In a regulated environment, investments in loans on Mintos will become investments in Notes – financial instruments backed by loans. We’re happy to tell you more about them.
We’ve gathered the best practices in Europe, and eventually, found out Notes to be the best solution, as it both meets the regulatory requirements and supports the investors’ interest for more clarity and security when it comes to investing in loans.
Currently, whenever an investor invests in loans on Mintos, a custom loan assignment agreement is made between the investor and the lending company. Notes, on the other hand, are financial instruments that meet European regulatory requirements, including the EU Prospectus Regulation.
The aim of Notes is to ensure more transparent cash flows from borrower repayments and more leverage to Mintos to protect investors’ interests in case of any adverse issues.
One full Note will correspond to one loan minus the skin in the game.
|If, for example, you invest € 20 in a Note that’s worth € 80 after a 20% amortization, you will acquire 0.25 (or 25%) of a Note. See the example in the picture below.|
The investing process on the Mintos marketplace will be the same as with loan parts currently.
Additionally, each Note will have its own individual international securities identification number (ISIN), provided by a securities depositary. ISIN identifiers support the accurate and efficient clearance and settlement of securities, as well as processing associated with payments made during the life cycle of an issue.
Changes to accrued interest
Interest for financial instruments will be accrued from day 1 on daily bases (on Note level, but not on investor level), meaning that when an investor buys a Note (or a fraction of a Note), the investor will buy the principal together with accrued interest.
Once the next interest payment date comes, the investor will also get the accrued interest he paid for upfront when investing in the loan. In most cases, the accrued interest, if any, will be relatively small as it is calculated from the last repayment date, which is usually up to a month ago.
|Suppose that an investor wants to buy a Note that offers a 12% annual return rate or 1% per month and that has been placed on the Mintos Primary Market one month ago. During that one month, 1% would have accrued and it would become a part of the investment.
For example, if the investor invests € 100, the investment would be automatically divided into two parts – € 99 as the principal and € 1 as the accrued interest.
And once the next repayment date comes, the investor would earn the monthly 1% interest (on the € 99 principal) plus another € 1 (the interest accrued before the purchase).
Accrued interest is a market standard used for bonds and other debt securities with a similar nature to Notes. Usually, accrued interest is paid on top of an investment, but as in the example above, it can also be made as a part of the investment to make it more convenient for investors.
What matters is that the end result – the return rates – won’t be impacted, only the process of how interest is being calculated and transferred.
Prospectuses describing investment opportunities
As a part of the new investment setup on Mintos, there will also be in-depth prospectuses, covering information about the potential investments in loans (Notes).
Each prospectus will enclose information about the Notes, investment-related risk factors, underlying loans, market and country data, the lending company and other parties of the deal, transactional overview (including the material contracts in place), and other details required by the applicable regulations.
Before the Notes can be offered to investors, the prospectuses will be registered at the Financial and Capital Market Commission (FCMC). FCMC will assess whether the prospectus meets standards of completeness, comprehensibility, and consistency before approving them. Prospectuses will be published on the Mintos website, and investors will be able to get acquainted with them before making investment decisions. Also, they will have to be renewed every year to keep the information up to date.
Investors should remember that underlying risks of investing in loans will still remain the same, as always.
Further information and questions
Notes will replace the current assignment agreements over time, ensuring European regulatory compliance under the evoking supervisory framework. We expect the full transition to last up to one year, starting from the moment when Mintos becomes a regulated marketplace.
While there’s still a lot of work to be done on the Mintos side in the upcoming months, we encourage everyone to share their thoughts in the comments and raise any questions you might have. We will do our best to provide guidance with explanations and FAQs, covering all aspects investors need to learn about Notes.