High Street Commercial Finance finally files accounts for 2017

High Street Commercial Finance, which has issued a series of bonds paying typical rates of 12% per year to the public via unregulated introducers, has finally filed its accounts for December 2017, nine months overdue.

High Street Commercial Finance Limited is the arm of the High Street Group which borrows money from investors.

The company was so tardy with its 2017 accounts that it will be overdue again in a mere three months, the 2018 accounting period having closed six months ago.

High Street Group took advantage of small company exemptions and did not have the accounts audited or file a profit and loss account.

The accounts show net assets of £13.5 million, comprising £57.3 million of assets and £43.8 million of liabilities. £37.5 million of those liabilities represented loan investors, with the remainder comprising trade creditors, loans from other High Street Group companies and “other”.

The assets include £19.8 million of money loaned to other High Street Group companies and £34.2 million of subsidiaries, associated and jointly controlled entities, valued at “fair value”.

As the accounts were unaudited, the valuation of High Street Group’s assets is the word of the directors.

Over the past year investors in High Street Group have reported that the company has for certain investors exercised a right to delay repayment for six months, and for others offered to swap the debt for shares. A debt-equity swap means High Street Group is no longer responsible for returning investors’ money and they have to find a buyer for their shares to realise their investment.

While the company withheld their profit and loss account, it is clear from what they have filed that the company was loss-making in 2017. The “profit and loss account” on the balance sheet sank from an already negative balance of minus £8.9 million to minus £20.6 million.

To put it another way, over 2017 High Street Group borrowed an additional £22.1 million (£16.3 million from loan investors and £4.5 million from other High Street Group companies) but net assets increased by only £1.0 million.

These heavy losses do not mean that High Street Group is insolvent; at time of writing it continues to trade and its 2017 accounts state that it had sufficient assets to pay all liabilities. This however depends on the unaudited valuations of its subsidiary companies and loans to other group companies being accurate.

High Street Group is currently reported to be offering bonds paying 12% per year, with additional bonuses for investing for longer than 1 year. To successfully repay investors with interest of over 12% per year, along with meeting the costs of paying commission to unregulated introducers (which are not specifically disclosed in the accounts), it will clearly have to find a way to reverse its heavy losses at some point.

According to charges filed with Companies House in March 2019, High Street Group has recently borrowed money from bridging loan provider Fortwell Capital and the Bank of London and the Middle East, with fixed charges.

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17 thoughts on “High Street Commercial Finance finally files accounts for 2017

  1. I provided regulated advice to someone that their investment in the High Street loan note was not guaranteed and that if the company did not perform, they could lose some or all of their money. They called the (unregulated) introducer and believed what they said (you know “guaranteed” etc) and proceeded to put half her husband’s pension in this.

    There really is no helping some people.

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  2. I hope you’ve got emails on file confirming that you advised them in the strongest possible terms not do so. Expect a complaint if they lose money in HSG on the basis you didn’t discourage them strongly enough.

    Whether anyone will lose money in High Street Group is unknowable, although it is an inherent risk with any loan note to a micro-cap company paying over 12% per annum.

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  3. I think we need to question both the competence and the motives of the author of the above review. For the moment let’s just review some of the announcements made about HSG in the last 2 years.

    1) sale of site in Milton Keynes to Grainger Trust plc
    2) sale of site in Warrington to Cording
    3) 5 more institutional development sales to be announced in the next couple of months
    4) Equity raise from Dubai, Korea and a family office of £100 million
    5) The purchase of First Penthouse
    6) Several announcements made by lenders stating that they have financed HSG to build substantial developments across the UK.

    Forgive me my ignorance but I don’t believe for one moment that the above banks and institutions would invest with a company that is not financially stable.

    In response to the accounts HSG have on many occasions clearly explained the business strategy to develop PRS schemes and sell them to institutions or BTL investors. By nature these projects are long term contracts, which take a minimum of three years to complete. Regardless of which exit they utilise, these projects do not generate profits until the assets being constructed are completed, this is both in terms of recognition within the profit and loss account as well as in terms of cash. The cost of raising the equity, (during 2016/17 was all on short terms loan notes of less than 12 months) attracts interest and commission which MUST be accounted for within the profit and loss account, therefore creating a disparity in the accounts between recognition of scheme profits generated and the cost of the equity raise, I understand that there were no completed schemes in 2017, hence no profits have been distributed to HSCF to offset the cost of equity. The capital repaid to investors is generated from the initial drawdown from the institutions or the refinance of the site when construction is started. To put it really simply so that the author can get a grasp of this, costs of equity are generated and posted to the P&L account in year one and profits are booked to the P&L account 3 years later when the schemes are completed.

    The recent mini prospectus clearly shows that there is a substantial spike in profits in 2020 onwards as an effect of the schemes being delivered. It’s shows turnover in excess of £400 million per year and profits of £43 million in 2020, £77 million in 21 and £126 million in 2022. This document was produced by an authorised third party. The company has also been valued at about £1 billion.

    All this information is readily available to the author of the above post but has clearly been ignored.

    For clarity my name is Stuart Lees and I don’t hide behind a computer screen.

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  4. Where can you get hold of a copy of the mini prospectus Stuart? I would like to have the full facts for due diligence.

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  5. Forgive me my ignorance but I don’t believe for one moment that the above banks and institutions would invest with a company that is not financially stable.

    Buying a building site or a penthouse from a construction company isn’t investing with it. Unlike lending money to it.

    Relying on unverified assertions about unnamed family offices and people from Korea is not a substitute for due diligence.

    If someone asking you to lend them money has borrowed lots of money from other people then the starting point is that this makes them less creditworthy, not more. Because they are more in debt.

    If your corporate finance specialists have verified that despite all the other money they have borrowed, they still have enough verified future income streams to meet all those obligations and the money you are considering lending them plus interest of over 12% per year, based on robust and realistic cashflow projections, then fine and dandy.

    By nature these projects are long term contracts, which take a minimum of three years to complete.

    Then it would seem a fairly stupid idea to issue bonds repayable after a year or 18 months when the projects to repay the capital won’t complete in that time. This is corporate finance 101.

    The recent mini prospectus clearly shows that there is a substantial spike in profits in 2020 onwards as an effect of the schemes being delivered.

    Last time I looked at my watch it was still 2019, which means that the directors project a substantial spike in profits in 2020.

    This document was produced by an authorised third party.

    If they were paid to produce it by High Street Group they’re not a third party. Independent due diligence by someone paid by the investor is necessary if the prospective investor wishes to ensure they aren’t doing an Independent Portfolio Managers.

    The company has also been valued at about £1 billion.

    By whom? Not by the company’s directors in their last accounts. Net assets of HSCF are £13.5 million and net assets of the holding company High Street Grp are £40.6 million as at December 2017 (both figures unaudited).

    All this information is readily available to the author of the above post but has clearly been ignored.

    If you want someone to regurgitate unverified claims by the borrower you are in the wrong place.

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  6. This document was produced by an authorised third party. The company has also been valued at about £1 billion

    You know what, that’s an extraordinary claim (given HSG’s known net assets) requiring suitable evidence. And better still a very specific one. Kindly provide a link to the valuation report, including all assumptions and multiples supporting the £1 billion figure, or your licence to post HSG investor marketing copy on my blog is revoked.

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  7. HSG has a Fixed Investment Asset value of 41million. A quote from their accounts ” Investment in subsidiary companies have been valued on a fair value basis. These valuations have been calculated by the directors with reference to the fair value of the net assets of each company and projected profitability. The historic cost of the investment is £100K″. This valuation of more than 400 timeshistoric cost by its own director surely underline this as a ultra high risk investment.

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  8. The High Street Group and its unregulated loan notes have been on my radar for some time now since being cold called by an unscrupulous unregulated introducer.

    This scheme has reached such magnitude now that I am seriously concerned about the vast number of retail investors who are likely to lose all of their capital following the almost inevitable credit event which is drawing very close, more so given the reported delay of interest (let alone principal) payments.

    There are several structural issues with these ‘loan notes’, and some of the financially illiterate promoters of the scheme, such as Stuart Lees, and ‘Louis’ on the paired thread.

    Firstly, the commission structure of the notes is obscene and crippling to the issuer (High Street Group). A 35% commission is paid to the network of ‘introducers’, drawn from the loan proceeds. In addition, investors also receive interest of between 12% and 18%. For a one-year product, this equates to an interest cost of between 47%-53%. Gary Forrest must double his capital to return just the principal to this form of capital provider.

    Retail investors are not aware of these costs, and some unregulated introducers have made significant amounts of commission whilst no doubt making false promises and telling outright lies to investors whom they should not be able to reach. Self-certification provides another loophole, encouraging investors to identify themselves as ‘sophisticated’, ‘professional’, or ‘HNW’ when they actually may be far from it.

    What makes me most concerned is the reference to ‘the cost of raising the equity’ in the words of Stuart Lees. Clearly, capital drawn from the loan notes is presented as equity capital to the institutional providers of development finance, such as Topland Jupiter. However, this is not equity, rather very expensive short-term debt. Further, claims that the institutional development loans can refinance the short-term debt are illogical, given that development loan proceeds are not drawn clean in the account of the borrower, rather paid directly to contractors on presentation of QS certificates.

    Secondly, claims that the High Street Group has made profits in the double-digit millions are quite frankly false. This is classic accounting fraud. To revalue investments up to GBP 41m, while carrying a loss of GBP 290k in the P&L reserve is a simple, elementary and pathetic attempt at cooking the books. The accountant assisting in the accounts prep should be penalized for allowing such malpractice to occur. Booking future profits which have not yet materialised may be an effective method of raising funds through further loan notes but will simply defer and magnify an inevitable credit event.

    Thirdly, how the FCA can allow unregulated brokers to distribute what is clearly a financial instrument, a ‘loan note’, is unfathomable. A bilateral loan paired with a debenture (which I doubt will be even registered as security) is clearly a financial product. The distribution method is unlawful and should be stopped as soon as possible.

    If action is not taken soon, without doubt we will have a second London Capital & Finance situation in our hands. Gross proceeds raised now through these loan notes have reportedly hit GBP 100m, not far from the 237m of LCF.

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  9. Wow there is a lot of conjecture here from people slating a company without any facts. Can we be clear that an investment in a company is not best judged by the salesmen who profit from commission. Although 35% commission sounds ridiculous, if that were true post the evidence not the conjecture!

    [Offtopic waffling removed. -Brev]

    What I know about HSG is that they have paid all investors back to date, on time (using contractual extensions always). They own a number of sites pre-sold to institutions. Travel to Newcastle and look at the 27 storey building in the skyline and then tell us all it is a scam! Why bother building it if it is a scam?

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  10. What I know about HSG is that they have paid all investors back to date, on time (using contractual extensions always).

    Completely irrelevant. Past performance is not a guide to the future. Every single company that went bust had paid 100% of its debts on time, until it went bust.

    Travel to Newcastle and look at the 27 storey building in the skyline and then tell us all it is a scam!

    Taking a train to Newcastle and looking at a building is not a substitute for due diligence.

    You are literally the only person talking about scams here.

    Notwithstanding that you are the only person here accusing HSG of being a scam, if we entertain your notion that HSG might be a scam for a second, the answer to your question is “Because then people will run around the Internet saying ‘It can’t be a scam, they done build a big building in Newcastle’.”

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  11. It would seem that due diligence is not a requisite for most Brev. You would prefer to slag off rather post evidence. Whilst you state past performance etc as a statement you should therefore NEVER invest in any company, ‘blue chip’ companies would never assume a better stability or be perceived as ‘low risk’ due to a credit rating for example.

    DD on HSG is easy, they use SPVs for each site and therefore charges are declared on Companies House. Loan Note lending could be assessed via trustees.

    The bottom line is that this site has done some good work uncovering some appalling fraudulent investments but must not get trapped in all ‘alternative’ investments are bad…

    [More off-topic waffle removed. -Brev]

    BTW your insult of ‘they done a big building’ is noted in its foolishness. Perhaps you should stop looking through the eyes of a judge and jury and instead look for facts and nothing else.

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  12. You would prefer to slag off rather post evidence.

    There is no slagging off around here, only facts. If you feel describing an inherently high risk investment as “high risk” is slagging off, then high risk unregulated securities are not appropriate for you.

    Whilst you state past performance etc as a statement you should therefore NEVER invest in any company, ‘blue chip’ companies would never assume a better stability or be perceived as ‘low risk’ due to a credit rating for example.

    In isolation, an individual share in a “blue chip” company is extra-high risk due to the risk of permanent and total loss. A blue chip individual share is however lower risk than a loan note issued by an unlisted micro-cap company, due to the former’s higher liquidity and, other things being equal, lower risk of business failure.

    DD on HSG is easy, they use SPVs for each site and therefore charges are declared on Companies House.

    Reading historic information on Companies House is not a substitute for due diligence. Due diligence requires full disclosure of the company’s current financial position and future cashflow projections, which must be independently verified to constitute due diligence.

    Anyone who thinks due diligence on unlisted micro-cap companies is “easy” is suffering from Dunning-Kruger effect.

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  13. You compare DD to suffering Dunning-Kruger yet have no ability to translate any of your accusations into fact. Who is suffering?

    What your entire problem with alternative investments is the inability to understand their suitability. You ban on about risk. Risk is subjective and in a way your warnings against the whole market are treading close to giving advice.

    Now if you are going to be smart (I assume you are an IFA?) let’s make it clear for investors who have been fleeced in this market by promises made by unscrupulous salesman with no idea what risk or, and this is key, capacity for loss is. IF YOU CAN’T AFFORD TO PLAY AND LOSE, DON’T PLAY!

    Perhaps an article on capacity for loss could help. Certainly I agree with you that unregulated bonds are not suitable for most. BUT they are ok for those with enough capacity to loss to speculate.

    However, I think that your superior nature in making accusations against anyone with a differing opinion can only mean one of two things, you suffer from NPD of have lost money from a lack of due diligence?

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  14. Mr Hevercot makes one valid point. What potential investors need to appreciate – before committing their money – is that most of these offerings are hugely speculative and risk a total loss of capital.

    I’ve said it before but it bears reiterating: These investments present casino-like levels of risk and are completely unsuitable for real people who can’t afford never to see their money again.

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  15. Thank you Adam.

    This is key, even the FCA and their regulated con men do not understand this. Risk is commensurate to capacity for loss.

    Can I afford to lose £2 gambling on the lottery, yes….I don’t though because there is little chance of reward. Almost a fraudulent chance of return for most.

    Can I afford to lose 5% of my pension fund, even in ‘safe’ funds (Franklin, Jupiter, Invesco). yes, but I’d rather they didn’t charge me for the benefit of it.

    Can I afford to lost £50,000 in HSG, yes, I’m lucky.

    BUT if you’re on minimum wage….NO to all three, if you’re on £100,000 p.a. but have nothing in the bank, it’s still a NO, if you happen to be a multi millionaire with frugal tastes then to be honest, the lottery is still a poor choice and 5% loss on a properly managed pension fund would be £50,000 or conversely what you could lose in HSG…

    The point is to stop talking solely about risk, Get rid of the greedy salesmen. Get rid of the fake ‘approved promotions’ and leave firms like HSG to work with those who understand their model and are happy making money.

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  16. if you happen to be a multi millionaire with frugal tastes then to be honest, the lottery is still a poor choice and 5% loss on a properly managed pension fund would be £50,000 or conversely what you could lose in HSG…

    A properly managed pension fund has minimal risk of permanent loss if held for the long term. 5% short term paper losses will be frequent but a properly diversified fund will always recover. An investment like HSG has a significant possibility of permanent and total loss.

    The point is to stop talking solely about risk

    If you don’t want to talk about risk then a blog about inherently high risk unregulated investments may not be for you.

    Get rid of the greedy salesmen.

    Your comment would probably be better directed at High Street Group since it is their decision to source business from unregulated introducers.

    and leave firms like HSG to work with those who understand their model and are happy making money

    Your comment would probably be better directed at High Street Group. If they are so keen to work with people who understand their business model, it is mystifying why they source business from unregulated introducers who misleadingly promote their high-risk unlisted loan notes as “strong security” or “fully secured”, use FOMO tactics of “short term” special deals that are almost immediately replaced with new ones, etc.

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