Argon Credit, the Chicago online lender, reportedly filed for bankruptcy protection last week, with negative implications for Ranger Direct Lending Fund of the U.K.
According to a report, Argon Credit cofounder and Chief Executive Raviv Wolfe said in the bankruptcy filing that liquidity woes cause it to miss a payment under a credit facility valued at $37.5 million. Argon Credit makes loans with terms of 12 to 60 months with sizes ranging from $2,000 to $35,000 to borrowers with low credit scores. In return for the loans, borrowers pay interest of anywhere from 19 percent to more than 95 percent, noted the report. Argon said the missed payment happened amid an increase in loan defaults that happened while it was transferring servicing of the loans to a third party.
Once the loan servicer started to service the debt, problems started happening, including it taking three weeks or more to refinance a loan or to deal with increase requests; first payment loan defaults increased from 4 percent to 12 percent and life of the loan default rates moved to 34 percent from 24 percent; customers who made eight to 10 on-time payments stopped paying and a large number of new customers didn’t make their first payments at all. The loan servicer facing the criticism is First Associated, which is disputing the claims. In the report Larry Chiavaro, executive vice president at First Associates, said in an email statement, “It’s always easy to blame the servicer for origination issues, but our performance on this portfolio was very good.”
But it’s not only First Associated that could be impacted by the bankruptcy filing. The report noted that Argon Credit uses a number of institutions for funding its subprime lending business, with one senior lender being Princeton Alternative Income Fund. Princeton, which had around $65 million under management at the start of the year, has a $37 million claim against Argon Credit’s assets. Princeton Alternative Income Fund is 100 percent owned by Ranger Direct Lending. Ranger said in an update to the market that its exposure to Argon is around $28.3 million. Ranger said it doesn’t foresee an impact to its net asset value or dividend payments as a result of the Argon bankruptcy filing, noted the report.