Prime ISA – unregulated investment in a data centre offering 7% per year

Prime ISA (a trading name of Northern Provident Investments Limited) is offering unregulated investment in bonds issued by Prime ISA Bond Co 1 Limited.

The website primeisa.co.uk describes the offering as 7% per year after three years. The PDF brochure, however (available from the same website via “Download our free investor guide”) describes the offering as 6% per year over five years. It is unclear which is correct.

In addition, the brochure says “Invest £20,000 in Prime ISA, after 5 years you would receive a total of £26,034 Tax Free, equalling a return of 30.2%.” On a Compound Annual Growth Rate basis, this is a 5.4%pa return. This is despite the brochure saying earlier “What’s better is the Innovative Finance ISA compounds your interest…” under “6%” in a big font, which to my eyes implies that 6% should be compound and not simple interest.

6 percent
Does anyone in the unregulated bonds industry know how to compound interest correctly? £20,000 compounded at 6% for 5 years is £26,765.

Who is Prime ISA?

daron-1
Daron Lee, Prime ISA Limited owner

The small print at the bottom of the website states “When referring to ‘Prime’, we are referencing the bond issuer who is Prime ISA Bond Co 1 Limited. Registered in England and Wales, company number is 10952707…” However company 10952707 is Prime ISA Limited. Prime ISA Bond Co 1 Limited is company 11078851. There is also a Prime ISA Bond Co 2 Limited (11143964).

Both Prime ISA Bond Co 1 and 2 are 100% owned by Prime ISA Limited, which is in turn 100% owned by Daron Lee, one of the two directors.

Daron Lee previously founded the broker XCap Securities in 2010. He stepped down in late 2012.

Confusingly, Northern Provident Investments Limited is referred to by its trading name of Prime ISA, but is effectively separate to the Prime ISA 1 / 2 and holding companies. It is is 100% owned by Innovative Property Finance Limited according to its last confirmation statement. Innovative Property Finance Limited has since been renamed as Northern Provident Services Limited, and is 100% owned by Paul Crawford.

Northernprovidentinvestments.co.uk describes the role of Northern Provident as to “facilitate the financial promotion of marketing materials and the Information Memorandum by way of Section 21 FSMA sign off”.

Note that while Northern Provident and the production of financial promotions for Prime is regulated, the investment is not.

Paul Crawford is described on the website as a Diploma Qualified financial adviser, but should not be confused with the other financial adviser named Paul Crawford who ran Crawford Consulting. According to Companies House, Northern Provident’s Paul Crawford is 20 years younger than Crawford Consulting’s Paul Crawford.

According to the FCA register Northern Provident Investments Limited is also known as Just ISA, Northern Provident Investments, Property Vault ISA, Barbican ISA, Baribican ISA, Fyzz ISA, Prime ISA, Northern Provident Financial Limited, Simply ISA, Choices ISA, ISA Lab, and Money Labs Ltd.

For the rest of this article, “Prime” refers to the bond issuer and not Northern Provident.

How safe is the investment?

These investments are unregulated corporate loans and if the issuer (Prime ISA Bond Co 1) defaults you risk losing up to 100% of your money.

The purpose of the bonds is to allow Prime to renovate a data centre in Wythenshawe. Presumably, after the data centre is refurbished, it will be sold and the proceeds used to repay the bonds.

If Prime is unable to sell the data centre for enough money before repayment of capital and interest falls due, or for any other reason Prime runs out of money to service these bonds, there is a risk that they may default on payments of interest and capital to investors.

Asset-backed security

According to the literature, “the bond is secured against the assets of the Project Company. This will include the security it takes on the project it is financing.”

One would assume this would mean the data centre, but this is not actually explicitly stated in the literature. Nor does the literature state who or which company owns the data centre.

If investors plan to rely on this security, it is essential that they undertake professional due diligence to ensure that in the event of a default, this security is valuable and liquid enough to raise sufficient money to compensate all investors, as well as any other creditors that Prime has borrowed money from. The starting point is to check what the assets of Prime ISA Bond Co 1 actually are, and what security it has over the physical property of the data centre in its turn.

The literature goes on to say “Asset backing is a minimum of 125% of the professional valuation undertaken.” As written, this statement makes little sense. The asset-backing is 100% of whatever the valuation is. Perhaps they meant to say “Asset backing is a minimum of 125% of the amount borrowed, according to a professional valuation”.

Investors should not assume that because the bonds are asset-backed, they are guaranteed to get at least some of their money back through sale of the collateral if the issuer defaults. Investors in asset-backed loans have been known to lose 100% of their money (e.g. Providence Bonds and Secured Energy Bonds) when it turned out that the collateral was insufficient to pay investors after paying the insolvency administrator (who always stands first in the queue).

We are not in any sense implying that the same will happen to investors in Prime, only illustrating the risk that is inherent in unregulated corporate loan notes even when they are asset-backed. Until they have determined exactly what the security assets of Prime are worth and exactly how much has been lent out, investors should still consider the risk of up to 100% loss.

Should I invest with Prime?

This blog does not give financial advice. The following are statements of publicly available facts or widely accepted investment principles, not a personalised recommendation. Investors should consult a regulated independent financial adviser if they are in any doubt.

As with any unregulated corporate bond, this investment is only suitable for sophisticated and/or high net worth investors who have a substantial existing portfolio and are prepared to risk 100% loss of their money.

Investors will need to determine what the rate of return actually is (5.4%, 6% or 7%) before they can begin to assess whether it is worth taking the risk. Prime’s confusing literature is very unhelpful in this regard.

Prime’s literature claims that “While nothing is free of risk, the directors of Prime ISA, alongside the Project Company, will work extensively to achieve the minimum of risk.”

riskRegardless of what measures have been taken to reduce risk, as an individual security with a risk of total and permanent loss, Prime’s bonds are higher risk than a mainstream diversified stockmarket fund.

This particular bond is described as asset-backed. Before relying on the security backing the bond, investors should undertake professional due diligence to ensure that in the event of default, the security could be easily sold and would raise enough money to compensate all the investors, after the adminstrator deducts their fees and any higher-ranking borrowers are paid.

Before investing investors should ask themselves:

  • How would I feel if the investment defaulted, the sale of the security failed to raise enough money to compensate all investors, and I lost 100% of my money?
  • Do I have a sufficiently large portfolio that the loss of 100% of my investment would not damage me financially?
  • Have I conducted due diligence to ensure the asset-backed security can be relied on?

If you are looking for an investment with “the minimum of risk”, you should not invest in unregulated products with a risk of 100% capital loss.

One thought on “Prime ISA – unregulated investment in a data centre offering 7% per year

  1. The incorrect/conflicting statements in the marketing materials (brochure & website) on the interest promised plus the confusing asset backing statemen(s)t, could imho, be considered false misrepresentations (either innocent, negligent or fraudulent, I can’t say which).

    But given Paul Crawford is described as a Diploma Qualified Financial Adviser and regulated Northern Provident are providing FSMA 21 signoff on marketing materials, I would expect them to know these basic things. Having claimed to have a specialist skill and knowledge, the law expects them to make good on that claim.

    Spondet peritiam artis, et imperitia culpse enumeratur which means: “he is responsible for skill in his profession and want of such skill is regarded as a fault.”

    Like

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