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KLIF Update - Webinar Replay (Oct-6-2026) — Transcript

by Katch Investment Group · 4,227 words · 635 segments · language en · Watch on YouTube

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0:01So hello everybody and thank you for
0:03attending this webinar about the catch
0:04litigation fund. Um in the interest of
0:08time and without further ado I will let
0:10Felix Curtis our head of origination
0:12update you on the most of finance book.
0:15Uh Felix over to you.
0:19>> Thank you Lauron and and thank you all
0:21for for joining. Um, as Laura mentioned,
0:24I will look to update you on various
0:26events affecting the the motor finance
0:29investments across cliff, which are of
0:31course important positions for for the
0:33catch litigation fund. So, the first is
0:37the FCA's motor finance redress scheme
0:39and the legal challenges to it. Uh the
0:42second uh more briefly uh is perhaps the
0:46the angel uh versus Blackhorse
0:48litigation which ideally gives our
0:51clients um a more efficient route
0:54through the courts uh court system for
0:57claims that fall outside of the scheme.
1:00So just to recap from our previous
1:03update,
1:05uh the FCA [clears throat] announced the
1:07scheme in March, the redress scheme in
1:10March, and shortly afterwards, four top
1:13participants uh challenged it uh in the
1:15upper tribunal. Three of them are
1:18lenders uh being Volkswagen,
1:21MercedesBenz, and Credit Agriculture
1:25the scheme goes too far. The fourth is
1:29consumer voice. a consumer group which
1:31argues that it does not go far enough.
1:35As a result, in July, the scheme was
1:38partly paused while the tribunal hears
1:41those challenges.
1:43Importantly, uh please remember that the
1:46pause is not necessarily a standstill.
1:49The lenders must still identify the
1:51claims that are in scope and gather the
1:54commission data and so on. So when the
1:57when the even and when the scheme does
1:59restart, it will be from a more advanced
2:02position.
2:04It is also worth noting that most of the
2:07market including Lloyds, Barclays and
2:10Santandere did not challenge the scheme
2:13and many of these defendants have made
2:15significant financial provisions in
2:18preparation for such scheme.
2:21Taken together with the fact that the
2:23challenges pull in opposite directions,
2:27this does somewhat suggest to us that
2:29the FCA has probably struck a defensible
2:33balance and the legal test for
2:35overturning the scheme is a relatively
2:37high one and the most recent comparable
2:41um challenge to to an FCA redress scheme
2:43did fail. It is predict it is predicted
2:47ultimately that the scheme probably does
2:50survive in substance possibly with some
2:53adjustments.
2:55So the question really becomes when will
2:59the tribunal hear the challenges to the
3:02to the scheme.
3:04So that they have set aside two possible
3:06hearing windows.
3:085 days from uh in December or 9 days
3:12from in in February next year. The
3:16choice between them is currently being
3:18heard at a case management conference
3:20hearing that started yesterday and it
3:23ends today.
3:24We expect ultimately the tribunal's
3:27decision on that listing shortly. But if
3:30it if it chooses December, we should
3:32hopefully expect a judgment on it around
3:35February to March next year. But if it
3:37chooses February, we can expect a
3:39judgment around April to May. But either
3:43way, the scheme has said that if the
3:45scheme, sorry, the FCA has said that if
3:48the scheme is upheld and no one appeals
3:52that the decision of the tribunal,
3:54payments could begin in in 2027.
3:58And this brings me to the angel and
4:00black horse matter which matters to us
4:03for a different reason but is
4:05nonetheless related.
4:08So the angel case is is more about
4:10process and how claims can be processed
4:13through the court system.
4:15In June this year, the Court of Appeal
4:18unanimously confirmed that thousands of
4:21claims can be brought together on a
4:24single omnibus claim form rather than
4:26issued one by one, bringing far greater
4:29efficiency uh when it comes to high
4:32volumes of lower value similar claims
4:35for claims that fall outside of the
4:38FCA's redress scheme and they need to be
4:40litigated. That gives us a very
4:43cost-effective court route. If the
4:46scheme were significantly delayed or
4:49further narrowed as a result of the the
4:51the appeals, it it could give us a
4:54credible alternative as well. The open
4:58question at the moment is whether Black,
5:00which is Lloyds, will try to appeal the
5:03decision of the the Court of Appeal to
5:05the Supreme Court.
5:07We understand it is the intention of
5:09Lloyds to to apply to the Supreme Court
5:13in and around the middle of this month.
5:16If it does not apply, the Court of
5:18Appeals decision is final and the route
5:20is open in line with the Court of
5:23Appeals decision.
5:26So I should be clear about what could
5:28change the timings. So on the scheme, it
5:32really depends on when the tribunal
5:34hearing is listed, whether it's December
5:36this year or February next year. But
5:39naturally, any further appeal or the
5:41outcome of that um tribunal hearing um
5:45will will drive the timing of the of the
5:49scheme.
5:51And I should say that if the tribunal
5:53strikes down part of the scheme, even
5:56part of the scheme, the FCA would need
5:58to likely redesign the scheme and go
6:01through a consultation process again,
6:04which the FCA uh itself has said that it
6:08could push redress into 2028.
6:11On the angel case, the main variable is
6:14whether Lloyds through Blackhorse
6:17applied to the Supreme Court and whether
6:20the Supreme Court agrees to hear an
6:22appeal, which would likely result in a
6:26in another delay on that front.
6:29So, what does this really mean for
6:31Cliff? It means that the MO finance
6:34positions still hold a great deal of
6:36value, but the timeline to realizations
6:39has certainly moved further out. The
6:42degree to which that moves out will be
6:45determined by one, decisions by the
6:48upper tribunal on the redress scheme and
6:51two, the Supreme Court if Lloyds apply
6:53for permission to appeal Angel and the
6:55court decides to permit that appeal.
6:59We will look of course to update
7:01investors on the various outcomes of the
7:03upcoming decisions as and when they
7:05develop over the next few months.
7:08I just want to we we did receive some
7:11direct questions on the mode finance
7:12points um prior to this. So if I may
7:15I'll probably just cover those off now.
7:19um one of them or a number of questions
7:22revolved around the same subject but
7:24asked whether the scheme uh in light of
7:28these legal challenges could be scrapped
7:30entirely.
7:32We think that is very unlikely given how
7:34high the bar is. The FCA have an
7:37extremely wide remmit to implement the
7:40implement these schemes and throughout
7:44each part of the the implementation
7:46period they they sought leading
7:48council's advice on on every aspect of
7:50it and the last time there was a
7:53challenge to the FCA scheme it it
7:55failed. So we see it is very unlikely it
7:57will be scrapped but there is a chance
7:59that it may be refined in part
8:03and we we had a few people ask given the
8:06delays why not just litigate everything
8:09now
8:11for the claims that are in scope of the
8:13potential scheme the the scheme is
8:16looking to be the still looking to be
8:19the faster and more efficient route to
8:21to redress. Um ultimately it's our it's
8:24our client law firm's uh decision and
8:27how they best uh advise their clients.
8:30Um so it it it it monitors the the
8:35situation closely. Um but where if if
8:39subject to the angel um outcome, if the
8:43court route appears more efficient and
8:47uh more likely to produce the right
8:48level of redress for its clients, then
8:50it will probably opt for the court route
8:53uh instead.
8:56Uh we had a question also on when um we
9:00will see likely see distributions on on
9:03the motor finance positions. it, as we
9:07say, it does depend on both the tribunal
9:09outcomes, but also the angel appeal. If
9:12the scheme is upheld without appeal, the
9:15FCA does expect uh payments to begin in
9:192027. However, if um challenges are
9:23successful and they have to redesign the
9:25whole scheme, as the FCA do say, this
9:28could slip into to 2028.
9:33So I hand back to Lauron who will be
9:35able to update you on the rest of the
9:38portfolio.
9:40>> Thank you Felix. Uh I realized that uh
9:43there's a technical issue with my
9:45camera. So I think was working in the
9:47beginning and now it stopped working. So
9:49with apologies I might carry on without
9:51it. Um [clears throat]
9:54so
9:56uh there hasn't been any major news
9:58really uh in any of the sub portion of
10:00the book. Uh just as a reminder the
10:03status of the fund uh it's in voluntary
10:05liquidation since the 1st of September
10:072025.
10:09Um subscriptions and redemptions have
10:11seized pending redemption request were
10:13cancelled and all investors receive a
10:16prora share of each distribution uh in
10:19the future. Of course the performance
10:21fee has been suspended since uh
10:22September 2025.
10:24The net asset value of the fund is um
10:27approximately 262 million uh pounds as
10:30of the 30th of June. Um we project
10:34distribution in the region of about a
10:36third in 2027 and the balance in 2028.
10:39Um we had earlier projections of 20% in
10:432026 which unfortunately was withdrawn
10:46because of the delay of the FCA uh motor
10:48finance scheme. That leaves us with a
10:51portfolio composition where motor
10:53finance represents 28.8%
10:56of the fund. Mortgage prisoners is 21.1%
10:59of the fund. Um a refinancing working
11:04capital incubator loan to Harkus Parker
11:06is 16.6%.
11:09The litigated book of motor finance uh
11:12with consumer rights solicitors is
11:1416.2%.
11:16And then we have um some some other sort
11:19of smaller smaller positions in the
11:20book. So none of that is new. Uh these
11:24uh these positions continue to progress
11:26uh albeit you know uh somewhat slowly.
11:29Uh the of course the single largest
11:31swing factor for timing remains the uh
11:34the upper tribunal challenge as
11:36explained by um by Felix. Um so so you
11:41know this is this is really you know the
11:43bit that will make the distribution
11:45faster or um slower. Uh mortgage
11:50prisoners uh that's run by Harkus
11:53Parker. Uh as a reminder this is where
11:57uh you know we have borrowers who whose
12:00mortgages were sold um after the
12:02financial crisis in 2008 to inactive
12:05lenders and investment funds leaving
12:11which and trapped on high variable
12:14rates. Um the rates the the claims are
12:18against the owners of the of the
12:19landmark and topaz mortgage books and
12:22SPV structures. Um the book is split
12:25into two cohorts MP1 and MP2.
12:29Um in MQ1 we have
12:32um around a bit more than 2,000 claims
12:35with average claim value of 23,400.
12:40And uh on MP2 we have about 14,000
12:43quantified claims with an average of
12:4727,500
12:49a claim um plus a few thousand claims
12:52not yet quantified.
12:54We hold those position uh in the book it
12:57was a probability of success at around
12:5860% for both cohorts. Um of course you
13:02know uh we have direct claims against
13:04landmark and topaz.
13:07Um so the mortgage repayment cash flow
13:10held inside the SPV with any settlement
13:12liable treatable as an SPV expense
13:14through the the trustee mechanism is
13:17that's what we're going against. um the
13:20potential recourse to related parties
13:21with ownership of or decision-m
13:23influence over those businesses. This is
13:26what we are going for. So
13:30the budget so we have so in cliff uh the
13:34funding to date has been for MP1 a few
13:36million pounds I think it's close to4
13:38million on MP2 it's around 9 million I
13:42think um that of course has been paid
13:46into a ring fence harkus barker account
13:49uh we're monitoring quite closely the uh
13:52progression of the claim and where where
13:55the budget is spent uh there might be
13:58some funding gap
14:01depending on how those claims evolve. Um
14:06so basically
14:08there might be a necessity for the fund
14:11to
14:13uh use some of the realization from the
14:14motor finance position or repayment from
14:17other assets to fund
14:20um the the ongoing budget. Again that
14:23depends on you know how deep and how far
14:26those claims go. Um
14:28so uh [clears throat] we're also looking
14:31to um we're also looking for CPI uh
14:36protection as well for this for this
14:38position. That's ongoing conversation
14:40we've got with brokers and insurance
14:42companies. Um at the moment we have
14:46pretty much clear sort of uh funding you
14:50know uh security over the next 12
14:52months. So there's there it's it's
14:54fairly it's fairly well um budgeted and
14:57on on on good grounds. Um the Arcus
15:01Parker working facility uh which is what
15:03we call loan three around 16% of NAV.
15:07That's a lending package to Arcus
15:08Parker. Um so that's a combination
15:12combination of three things. So that's
15:13the refinancing um of the firm's
15:16existing depth in three tranches.
15:18uh there's a working capital line and a
15:20very small incubator which is basically
15:24uh a small budget that was allocated to
15:26Arcus Parker to find and fund new claims
15:30basically there's also some warrants in
15:33the firm so the cash litigation fund or
15:35some warrants in the firm I believe it's
15:37for around 10% of the capital um up to
15:4110% of the capital of the of the company
15:44um so the the facility continues to to
15:48acrew interest they're repaid. Um Harkus
15:51Park has progressed uh securing outside
15:54funding uh our funding or cliff funding
15:57for all three of its other cases. Um so
16:01they've made good good progress here uh
16:03which is good. Um
16:07so uh [clears throat]
16:10the it's important because the
16:12externally funded case uh cases generate
16:14fees that uh flow through uh a mechanism
16:17called the cash sweep which means that
16:19any profit uh or interest or income that
16:24comes from those claims would be
16:26basically used to to pay back uh the
16:28cash litigation fund on the basis of the
16:31working capital facility.
16:33Um we've also updated some of you on the
16:37um so insurance lawsuit. So that comes
16:42from uh back in the days where the fund
16:45was funding SSB law. Um of course this
16:50company went into administration in uh
16:532023. It was running a cavity wall
16:56insulation uh book that was protected by
16:59after the event insurance policy and
17:02those premium were uh funded by the
17:04fund. Um so in the process of the
17:08bankruptcy of SSB uh we use the security
17:12that the fund held over the balance
17:14sheet of SSB and the assignment of SSB
17:18is right uh and we now uh using those
17:21assets as a basis to fund uh 280
17:25insurers to recover those premium. Um
17:28the defendants had two specialized
17:30insurance companies. Uh and and in this
17:34uh we have hired um a highly specialized
17:37firm called U James uh who acts on
17:40behalf of um of the fund. One of the
17:43insurers uh was formally invited to
17:46mediation in August 2026 uh with the
17:49mediation proposed for November. Uh the
17:52second insurance for the second
17:54insurance company the proceedings were
17:56served. Uh we we're waiting for their
17:58defense. Um [clears throat]
18:02we are coordinating with our lawyers to
18:04basically
18:06engage with that counterparty as well.
18:09Um the basis on this uh is around 7
18:147,000 uh cavity wall insulation files uh
18:17that were identified in assessment
18:19systems that was under a court order and
18:22there's also a pleven book uh that is in
18:25the process of being recovered by the
18:26administrator that would be in due
18:29course um basically the basis for
18:32another claim against those insurers. Um
18:36so we're just waiting to see how
18:39the the claim you know in relation to
18:41the cavity wall insulation book uh
18:44developed to to push further for the for
18:48the claim the similar claim for the play
18:50book. Um it's very difficult to quantify
18:55uh that book. Uh it's all in all you
18:58know the maximum recovery that can be
19:00expected is probably in the region of 30
19:02million pounds. So that's 30
19:05um 30 million pounds. Uh it's not going
19:09to be uh you know quick of course unless
19:11there is settlement but which which in
19:13these situations are quite you know
19:16unlikely but it's not impossible. So um
19:20we also have we also triggering against
19:24uh the principle of SSB um you know uh
19:29the personal guarantee uh which was
19:32given by SSB's principle uh principles
19:36uh we haven't so you know for both the
19:39personal guarantees and the claim on
19:41insurance we haven't budgeted anything
19:44in the now of the fund so um you know
19:46those assets are basically marked zero
19:48at the moment.
19:50Um, [clears throat]
19:52another smaller position is uh a loan
19:56facility granted to the advice center
19:58group. Um, that's around 3% bit more
20:01than 3% of NAV. Um, it's an IVA funding
20:06position. an IVA which is a individual
20:08voluntary arrangement is a formal UK
20:10debt repayment plan um [clears throat]
20:13between an individual and their
20:15creditors and that's supervised by an
20:17insolveny practitioner. So the fund
20:20finance ACG's IVA book the facility is
20:23repaid from the fees collected uh on
20:25these arrangement over the life
20:28um that there's a position position that
20:30was funded through successive draw downs
20:34um from 2023
20:37there's about 85,000 IVAs in the book uh
20:4013.2 2 million has been repaid to that
20:43to debt to date and there's about 8.3
20:46million pounds outstanding.
20:48Um we estimate that there's about 15.8
20:51million of fees still being collected.
20:53Uh which is about just under two times
20:57the outstanding balance. Uh we hold that
21:00position in the book with a probability
21:01of success of 82%. It's always been
21:04performing. Uh it's a it's a it's a
21:06small but but a very u very healthy
21:09position. uh we expect this position to
21:12be fully repaid by the end of 2028. Um
21:17so it doesn't depend so what's
21:19interesting about this position is that
21:20it doesn't really depend on recurring
21:23cash flows. Uh so so it depends on
21:25recurring cash flows rather than a
21:26binary uh court outcome. Uh again you
21:30know it's been it's been performing well
21:31and and we expect it to carry on. Uh so
21:36that's [clears throat] where we stand
21:37with this position.
21:39we have gathered quite a few questions
21:42ahead of that webinar. Uh I'm gonna I'm
21:46going to now address them. Um so the
21:49first question is whether we can already
21:51quantify the potential uplift uh from
21:54the at insurance uh claim on the braven
21:56claims and when it will be realized. So
21:59as I said um it's very difficult to
22:02assess that with any degree of
22:03reliability.
22:05um the book sort of you know quantum or
22:09the quantum of the claim is somewhat
22:11easy to calculate as I said you know
22:13it's around 30 million pounds I think um
22:16without the ple premium uh however you
22:21know in these situations
22:23uh often times even if the claim is
22:25successful it's probably through a
22:27settlement which means that the amount
22:29recovered will likely be lower than that
22:32um so it's it's early days uh and and
22:35we're certainly working with with the
22:38lawyers to maximize that uh that
22:40position in the recovery. Um so as I
22:43said, you know, we first going to
22:45address the cavity wall insulation
22:47claims against the insurers
22:50uh with was a first mediation uh planned
22:53for November. It's very difficult after
22:56that to to figure out which you know the
22:58timing of of any repayment. Uh but it
23:02could be quick, it can be slow. Um it's
23:05of course you know we will update uh
23:08investors uh as soon as we have clarity
23:11on that. Uh I would say that
23:14realistically
23:15recovery would probably be towards 2027
23:20or the end of 2027.
23:22Um again that recovery hasn't been
23:25included in in the NA valuation. So uh
23:28that would be effectively pure pure
23:31upside from here. Um
23:35there was also a question about in
23:37incoming repayment into the fund. How
23:39will be how will it be used? Is it going
23:41to be distributed, reinvested or held as
23:44reserves and in what sort of priority?
23:47So because the fund is in liquidation,
23:49there's no new investment. Um the cash
23:51is used uh only to protect and and
23:54complete existing positions then uh
23:56return to investors. So in a liquidation
24:00like that the order of priority is the
24:02the fund running costs which are
24:05reasonably slim. Then then the funding
24:07needed uh to bring existing claims to
24:10resolution. So here we're talking mainly
24:13the mortgage prisoners uh book uh the
24:15rest is is quite well funded. Um and
24:19then after that we have parata
24:20distributions to um to investors.
24:24Um the baseline sort of cash inflow at
24:27the moment is around half a million
24:29pounds a month directly from the IVA
24:31book. That's been fairly regular and uh
24:34reliable.
24:36Um some of that has been being retained
24:39for you know for for the purpose
24:42mentioned above. Um anything above and
24:46beyond that of course will be
24:47distributed uh promptly to investors on
24:49a para pera basis.
24:53Um how how so first question when do you
24:56when do we expect to begin distributions
24:59um and how will uh they be paid?
25:03So because of the developments around
25:06the motor finance position the first
25:08distribution is expected in 2027 for
25:11about you know a third of the fund and
25:13the remaining uh so twothird of the fund
25:17uh probably in 2028.
25:19the distributions will be paid in
25:20transes uh as the positions realize uh
25:23not as a lump sum. So we're not waiting
25:26for you know all the cash to come back
25:28to the fund to make distributions uh
25:31those distributions will take place uh
25:33as the cash comes in and and and to the
25:36extent that it's sufficient to make um
25:40to make a distribution. Um
25:45so uh
25:48uh the first question that we received
25:49is uh are there any other expected uh
25:52haircuts? So there was one position
25:55which is a diesel emission uh around 3%
25:57of NAV uh where the outcome is is fairly
26:00binary. There was a July 2026 liability
26:04judgment which was broadly favorable to
26:06the manufacturers
26:08and that came a bit as a surprise. Um
26:11it's likely that we'll see an appeal. Um
26:14then you know uh if if if there is an
26:19appeal then the current valuation holds.
26:21If not then uh the position will have to
26:24be impaired. Uh again it's about 3% of
26:26of the fund. Uh we're expecting a case
26:30opinion in the coming weeks and any
26:33appeal will be heard towards the end of
26:352027.
26:37Um on mortgage prisoners at this point
26:40there's no there's no haircut expected.
26:42Um on the harkus barker facility there's
26:45no haircut uh expected. Um the
26:48repairment is mostly linked to the MP2
26:50outcome and MP1. Uh on the IVA book uh
26:55[clears throat] there's no impairment
26:56expected as I said is you know
26:59performing well. Um often times the
27:03positions are subject to binary outcome.
27:06uh there is a you know each position is
27:08subject to um a
27:12uh probability of winning uh sort of
27:15weighing. So so um you know the uh the
27:21binary outcome of of and the nature of
27:23of litigation funding
27:26uh means that you know it's reflected in
27:28the NAB. Uh we each position comes with
27:30a probability of funding attached to it.
27:33Um,
27:34so that's basically I think
27:38uh all I've got at the moment. Uh, of
27:41course
27:43um you are most welcome to send to us
27:46any follow on questions. Um
27:49uh we we we're really trying to to
27:51address them as they come in. So sort of
27:54first in first out basis. Uh it's it's a
27:57big job. So, so please uh bear with us
28:01whilst we uh you know we we go through
28:03all those questions. Uh we we'll make
28:06sure that you know we we'll revert to
28:08each one of you uh in in due course. Uh
28:12as a summary there hasn't been any major
28:14changes uh in the last few months uh in
28:17the book. Uh I think the the one moving
28:20part uh is really the motor finance uh
28:23book. It's been very frustrating due to
28:26you know uh new delays and and and and a
28:31timeline that was much longer than any
28:33of us initially expected. But um I think
28:36moon will come to a point where uh a
28:39resolution will will naturally present
28:41itself. So we we remain hopeful. We
28:44think it's a it's a book of high high
28:45quality and um [clears throat]
28:49and you know we we we're trying to be
28:51patient as you are uh and and and you
28:53know do what we can to help where we can
28:56our borrowers to uh to make those
28:58resolutions uh faster.
29:02So um thank you for your patience and
29:05and your attendance. Uh again, you know,
29:07any anything else that we can answer,
29:09please please be in touch with our
29:12investors relation team and um uh thank
29:16you Felix for your contribution as well
29:17on the motor finance uh motor finance
29:20book and uh we'll we will share with you
29:24uh the date of the next webinar
29:27uh when when it comes due. Um okay,
29:31thank you so much everybody and bye for
29:33now.

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