We review New Coal Solutions’ unregulated bonds paying 12% per year

New Coal Solutions plc is offering unregulated bonds paying 12% per year for a two year term.

While New Coal Solutions’ literature has been approved by an FCA-authorised company (Equity for Growth (Securities) Limited), the investment itself is unregulated, being a loan note issued by a non-FCA-authorised company.

Who are New Coal Solutions plc?

New Coal Solutions was incorporated in August 2017 and is owned 50/50 by directors Edward Evans and Michael Silver. A third director, David Murray, does not hold shares.

Its first accounts are due 8 February 2019.

New Coal Solutions shares an office (Chester House, 81-83 Fulham High Street, London) with ECR Minerals plc, of which Michael Silver is a former director (left 2012). ECR Minerals is a penny-stock AIM-listed mineral exploration company.

How safe is the investment?

As of January 2019, New Coal Solutions is promoting its bonds via the mobile advertising network Taboola with ads that read, in their entirety, “9.5%pa Fixed Rate Bond – Capital Secured”.

 

 

In reality these are unregulated investments into a start-up company and if New Coal Solutions is unable to make sufficient returns from its coal processing business, or for any other reason runs out of money to service its bonds, investors risk losing up to 100% of their money.

The adverts lead you to a page which declares, in large type, “Our Capital-Secured Fixed-Rate Bond Pays 12% PA over 2 years”. In much smaller text underneath it says “Your capital may be at risk. Investors should be aware that there are risks to investing in bonds.”

The discrepancy between the 9.5%pa advertised in the Taboola adverts and under “Beat Bank Rates” and the 12%pa advertised in the headline is not explained. [Update 8.2.19: After publication, the website and Taboola ads were amended, and a return of 12%pa is now advertised throughout.]

These promotions are misleading, due to New Coal Solutions’ failure to give the risks of investing in high risk unregulated loan notes equal prominence with its claim that the bonds are “capital-secured”. (Cf FCA’s Second Supervisory Notice to London Capital and Finance.) The Taboola ads are even more misleading, with no “Capital at risk” notice whatsoever.

Asset backed loans

Investors have a fixed and floating charge over the underlying assets of New Coal Solutions plc.

Investors should not assume that as they have a charge over the company’s assets, there is no risk of losing money.

Investors in asset-backed loans have been known to lose 100% of their money when it turned out that there were not enough assets left 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 New Coal Solutions, only illustrating the risk that is inherent in any loan note even when it is a secured loan.

If investors plan to rely on this security, it is essential that they hire professional due diligence specialists (working for themselves, not NCS) to confirm that in the event of a default, the assets of New Coal Solutions plc would be valuable and liquid enough to compensate all investors.

“Blocked Funds” arrangement

A further paragraph states “Blocked Funds are intended to provide a guarantee that the principal and interest obligations the Company will have to its Bondholders will be repaid at the end of the Term. The company is securing a ‘Blocked Funds’ arrangement via and A rated bank [sic] in order to provide a guarantee that the principal and interest obligations the Company will have to its Bondholders will be repaid at the Term.”

Specifics of this arrangement and the name of the “A rated bank” are not provided via the website. Investors should note that the words “is securing” suggest this arrangement is not yet secured. In any case, no A-rated bank acts as a guarantor to a startup borrowing funds at 12% per year. If an A rated bank was acting as a guarantor to New Coal Solutions’ bonds, they would not need to offer 12% a year to secure investment.

Should I invest in New Coal Solutions plc?

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 individual loan note in a new startup, 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.

Any investment offering yields of 12% a year should be considered very high risk. As an individual, illiquid security with a risk of total and permanent loss, New Coal Solutions’s bonds are much higher risk than a mainstream diversified stockmarket fund.

Before investing investors should ask themselves:

• How would I feel if the investment defaulted 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?

The investment may be suitable for high net worth and sophisticated investors who will already be well aware of all of the above risks, are looking to invest a small part of their assets in corporate lending, have done sufficient due diligence, and feel that the return on offer is sufficient for the risks involved in lending to a new startup company.

If you are looking for a “capital secure” investment, you should not invest in corporate loans with a risk of 100% loss.