Author Topic: Changes to Interest Rate and Expected Return

Lloigor · **OP:** June 19, 2013, 11:00:00 PM

This week LC adjusted the interest rates on various grades. I think A is unchanged, some in the B-D range were lowered, but the ones on the "junk" side of the spectrum got higher. And when purchasing new notes in the D-G range their "expected default" rates are significantly higher. It has moved my "expected return" numbers offered by LC from around 13% to around 10%, despite the higher rates. Anyone know how they come up with those numbers and if I should care?

joshh · **#1:** June 19, 2013, 11:00:00 PM

Yes, I noticed changes to the expected default rate, but not to the charged interest rates. It started late 6-18 or early 6-19. I archive off the browseNotes.csv files and these are the differences I'm seeing in expected default rate:

--Credit Grade--	--Old Expected Default Rate--	--New Expected Default Rate--
A1	0.75	0.85
A2	0.95	1.05
A3	1.35	1.40
A4	1.55	1.70
A5	1.75	2.00
B1	2.30	2.45
B2	2.8	2.85
B3	3.2	3.3
B4	3.5	3.6
B5	3.7	3.9
C1	3.85	4.25
C2	4.15	4.7
C3	4.4	5.2
C4	4.7	5.7
C5	4.95	6.3
D1	5.3	6.95
D2	5.55	7.6
D3	5.7	8.15
D4	5.9	8.8
D5	5.9	9.4
E1	6.75	9.8
E2	7	10.1
E3	7.35	10.25
E4	7.6	10.55
F1	8.25	11.4
F2	8.51	11.8
F3	8.79	12.1
F4	8.9	12.4
F5	8.95	12.6
G1	9.65	12.8
G2	9.75	12.85
G3	9.91	12.95
G4	10.1	13.0
G5	10.2	13.05

I'd expect LC to constantly be refining these expected default rates, but the amount of the increase does surprise me.

LonghornSF · **#2:** June 19, 2013, 11:00:00 PM

As long as LC has investors throwing money at them and not enough borrowers, you should expect interest rates on a risk-adjusted basis to continue decreasing.