Until recently there has been no readily available infrastructure to support a secondary claims market. Most of the transactions are undertaken over the counter (OTC), thereby constraining liquidity and price discovery.

There is an increasing pool of holders of claims who welcome the opportunity sale their claims as an exit option. At the same time there are buyers of such claims. Redebt is an online market where buyer and seller meet.

There is a move to standardisation of settlement documentation in relation to the trading of claims (for example using forms of the UK Loan Market Association) has paved the way to the use of technology solutions to expedite the trading and settlement of claims.

Redebt offers an orderly market facilitating buyers and sellers of claims to achieve efficiencies in the settlement process thereby minimising transaction costs.

Redebt will initially facilitate the trading and settlement of insolvency claims.

Insolvency claims are claims held by a creditor against a company which has filed for an insolvency procedure such as administration or liquidation.

Redebt will initially focus on the trading of insolvency claims in the UK. In due course it may roll out its services to France, Germany, Spain, Netherlands and other countries.

To save management time

There is less of a need to constantly review the position of the borrower or counterparty, analyse the rights of the creditors or evaluate one’s own position

To realise value from the claim or distressed debt

To realise the immediate value rather than hold onto the claim or distressed debt

To free up capital to invest in new business

Capital is freed up upon receipt of the purchase price of the claim or distressed debt

To comply with regulatory capital requirements

Some banks are forced by the Financial Conduct Authority and the Prudential Regulation Authority to limit the number of loans on the balance sheet

To preserve market reputation and “de-risk”

Banks associated with a lot of bad debts often gain a negative reputation

To make a profit

May buy distressed debt and sell it on, making a profit

To own part of the debtor’s company

A buyer can gain an advantage over other investors in the borrower and subsequently force insolvency

To influence a restructuring

A buyer making an investment may base its assessment on the probability of a successful financial rescue

To benefit from structural arbitrage

Buying a “blocking position”, investor may be able to influence any restructuring strategy to increase value for holders of relevant tranche of debtor claim held by that investor

Any person or company whether public or private is able to list and trade claims on Redebt

However, individual buyers or sellers on the Redebt must confirm:

That they are certified or self-satisfy as sophisticated investors; or

That they are certified as high net worth investors (have a net worth in excess of £250,000); or

They have or will receive independent advice from an authorised person.

A buyer or seller is required to fill in an online form and sign up to the Redebt User Terms and Conditions.  This includes making declarations that the respective buyer or seller has not received investment advice from Redebt.

STEP 1: OPENING A REDEBT USER ACCOUNT

The seller or buyer fills in an online form.  KYC is undertaken on the buyer or seller using the services of Smart Search, an FCA regulated provider of KYC services.  The buyer or seller pays for the cost of the KYC.   A Redebt User Account is automatically created for the seller or buyer with a specific reference number. In addition, a username and password for accessing the Redebt User Account is created.

STEP 2: APPLIES ONLY FOR SELLER OF CLAIM- UPLOADING CLAIMS DOCUMENTATION

The seller of a claim uploads information in relation to the claim onto Redebt. The seller is required to fill in a form requiring specified information in relation to the claim. This information is used to automatically generate a summary of the claim or “Teaser”

In addition, the seller of the claim may prepare an information memorandum (IM) in relation to the claim. A form of the IM can be downloaded from the Redebt website. The IM provides more detailed information in relation to the claim and may be useful for the purposes of marketing the claim as prospective buyers access to more information. The IM is prepared off the platform and uploaded as a PDF as part of the claim documentation.

The seller scans and uploads onto the Redebt website supporting documentation in relation to the claim.

Redebt takes steps to counter the risk of  being used for financial crime or misrepresentation by cross-checking the information uploaded by seller. The trading of the claim does not commence until Redebt has cleared it and reserves the right not to admit the claim for listing. However, Redebt operates on a no recourse basis and is not liable if information provided or uploaded is incorrect or for loss that may be suffered whilst trading on the Redebt website.

PRICING

The price at which the claims are traded is determined by auction sale. The bid price made in respect of a particular claim is visible only to the seller and not to other users of the Redebt website. Given this, different bid prices can be made for the same claim. Therefore, the same claim or portions thereof may be traded at different prices at the same time.

The seller may determin the reserve price in respect of any bids, if it so wishes.

The seller may accept the highest bid offer, following which the preferred bidder (buyer) receives confirmation of acceptance of its bid.  Alternatively, a seller can make a counter offer bid, which if accepted by buyer, seller receives confirmation of acceptance of its counter offer.

The bidder can still withdraw the bid until he/she receives a trade confirmation

Redebt is not involved in handling of money.  Payments of the purchase price from buyer is to be made directly to seller.   Redebt may arrange settlement of payments between buyer and seller via a third party regulated provider (such as a financial institution) of escrow account, if buyer and seller opt for such an arrangment.  In such circumstances buyer and seller will enter into an escrow account agreement with the regulated third party, who manages the settlement of payments.

For clarity, any moneys in the escrow account are not the asset of Redebt and are not at risk upon an insolvency event of Redebt

TRADING AND SETTLEMENT

Seller and buyer can trade directly with each other, and are not required to go through an intermediary or asset manager or broker dealer

Upon seller accepting a buyer offer, the buyer must pay a Transaction Fee (calculated as a per centage of the purchace price of the traded portion of the claim) into the Redebt Account within 28 hours, subject to contract.   The amount of the Transaction Fee is listed on the Redebt website under “Pricing”.  Under the LMA standard terms and conditions the trade is binding and must be settled on a timeline of Trade Date + 21 days. However, the objective of Redebt is to settle trades on a timeline of Trade Date + 3 days.

A trade confirmation is automatically generated upon payment of the Transaction Fee and trading of the claim is frozen.   Buyer and seller sign the trade confirmation by e-signature.

Redebt automatically generates an LMA assignment or transfer agreement.  If buyer and seller agree to settle the assignment or transfer of the claim on the basis of standard LMA assignment or transfer agreement on Redebt, the buyer and seller will then proceed to sign (i) assignment agreement and (ii) notice to the Insolvency Practitioner or the debtor in relation to the assignment of the claim by e-signature.

Buyer must transfer the balance of the purchase price (less the Transaction Fee) to seller.  Seller must confirm to Redebt receipt of the balance of the purchase price (less the Transaction Fees), within not more than 3 business days.  Upon confirmation of such receipt, Redebt releases to seller and buyer the fully executed assignment agreement and the notice of assignment to the insolvency practitioner.  If seller does not confirm receipt of the balance of the purchase price (less the Transaction Fees) after 3 business days, Redebt is entitled to assume that seller has received purchase price and in turn release the fully executed assignment agreement and notice of assignment to buyer.  Alternatively, if seller confirms that it has not received the balance of the purchase price, Redebt will at that point make enquiries as to the status of payment and the transaction may enter into Redebt’s dispute resolution procedures.

Seller and buyer may alternatively agree to settlement payments through the use of an escrow account.

If seller and buyer wish to negotiate the assignment or transfer agreement, this takes place off the Redebt website and upon being agreed PDF copies are uploaded and settlement occurs following same process as above

FEES PAYABLE BY SELLER

KYC Fee: See Pricing on Redebt website

Listing Fee:  See Pricing on Redebt website

Transaction Fee: See Pricing on Redebt website

FEES PAYABLE BY BUYER

KYC Fee: See Pricing on Redebt website

Claims Documentation Fee (if required by buyer): See Pricing on Redebt website

The services provided by  Redebt to buyers or sellers are as follows:

Conduit for sellers and buyers of claims to trade their claims

Listing of claims

Back office review of claims documents on a no recourse basis

Communications to sellers or borrowers in respect of any queries or information in respect of trading claims

Facilitating the secondary trading of claims via an auction system

E-data room in relation to claims information

Record keeping

Notification of borrower or insolvency practitioner or other relevant third party of the assignment or transfer of the claim

For the avoidance of doubt, the Redebt does not provide the following services:

Investment advice to sellers or buyers of claims. Buyers or sellers are advised to take independent advice and decisions

Pricing or valuation of claims

Legal advice to sellers or buyers of claims. Buyers or sellers are advised to take independent legal advice. The standard documentation used by the platform is provided on a no recourse basis

No. Redebt simply lists information provided by sellers of claims. It does not and has no obligations to provide or investigate any information in relation to any claim or which it may become aware of. It is simply a market for claims.

Buyers are required to undertake their own independent due diligence.

Buyer or seller are able to designate a professional adviser to access Redebt on their behalf for the purposes of due diligence or settlement of the claim.

Redebt is not a regulated market. Redebt is not authorised by the UK Financial Conduct Authority.

REDEBT USER TERMS AND CONDITIONS

Sellers and buyers on Redebt are required to sign Redebt User Terms and Conditions, which is in the form in the form of an omnibus agreement i.e. a seller or buyer becomes a party by signing an accession.

The Redebt User Terms and Conditions incorporate a set of regulations and procedures which govern the activities of the Redebt website and sets out clearly the services of Redebt including its obligations to the sellers and buyers.

It also set out the charging structure in relation to Redebt.

Buyers and sellers operating on Redebt are advised to take independent legal advice in relation to the Redebt User Terms and Conditions.

The Redebt User Terms and Conditions

The Redebt User Terms and Conditions address the following, among others:

The processes and procedures for trading

Complaints procedures and grievance or dispute resolution

Data protection

Expected conduct of the users of Redebt

Anti-money laundering and anti-terrorism rules and certifications

Tax

Risk management framework

Delisting of claims from Redebt