Fixed income investing is a strategy often used for the preservation of capital and to generate income. Typical investments include corporate bonds, government bonds, CDs, and money market accounts. But the current economic climate and the ongoing student loan debt crisis could make this a good time for investors to explore new opportunities in fixed income investing. Debt
The problem with typical fixed-income investment accounts is that interest rates have been so low for so long that the returns have been bleak at best. Now that the Fed is raising interest rates one might expect that the returns on these investments will go up; start to look attractive. However, with inflation at a 40-year high, even a modest increase in interest rate returns in these investments may not be enough to create an income, adjusted for inflation, worthy of investing in these types of assets. Debt
Investors who want to explore alternative investments may want to consider looking into ones that are considered non-correlated to the traditional markets, or investments other than traditional stocks, bonds, and cash. Alternative Investments are typically non-traded and may have liquidity restrictions requiring the investor to be comfortable holding the asset for an extended time frame. Debt
There are thousands of alternative investments to pick from and an investor must do their own due diligence to make sure the investment is suitable to their investment objectives and risk tolerance. One fixed income alternative investment many investors may not realize exists is the opportunity to earn up to 10.25% interest while also helping solve the student loan debt problem, a fixed income alternative investment the issuer calls “WinCome”.
Yrefy (pronounced Why Refi), is in the business of refinancing distressed private student loans, they do not refinance any federal student loans. The company provides a solution to borrowers where a solution did not previously exist. The borrower refinances their distressed private student loan into a low fixed interest rate loan with custom terms allowing the borrower to be able to afford the payments. This solution leads to a very fast FICO credit score recovery for the borrower and co-borrower(s). Debt
Yrefy puts each borrower through an extensive underwriting process and requires the borrower to escrow payments to prove they have the ability and willingness to pay their loan obligation prior to funding a new loan. During the underwriting process, Yrefy works with the existing lender/servicer/collection agency or law firm to negotiate the purchase price of the loan. Yrefy then buys the loan at, on average, .35-.38 on the dollar. They then refinance the loan to the borrower at 105% with custom terms that the borrower can afford (this arbitrage is how they can afford to pay the interest rates below). Debt
Yrefy is offering through its fourth portfolio to accredited investors, a secured and collateralized Regulation D 506c (as filed with the SEC), investment where the investor can choose the length of the investment and receive a fixed interest rate in return. As most investments offer a higher interest rate for a longer investment term, so does Yrefy. Debt
Yrefy offers promissory notes in the following tranches:
1 yr. note term – 6.25% Fixed
2 yr. note term – 6.75% Fixed
3 yr. note term – 7.50% Fixed
4 yr. note term – 8.25% Fixed
5 yr. note term – 10.25% Fixed
Here is where this investment gets interesting.
The investor can take interest income monthly with a payback of their principal investment at the end of the term, it functions as a bond but it’s a promissory note. For enhanced flexibility, the investor can choose as often as monthly, to turn income on or off, up or down (in 1% increments) in each individual tranche. If income is “turned off” the interest is reinvested and compounds. This allows an investor to dial in their income needs as required. Debt
If the investor needs access to all or part of the initial investment, the Private Placement Memorandum indicates that there is 90-day money out with the surrender penalty being a loss of the interest paid or earned on the amount redeemed. There is no attack on the principal investment, similar to many CDs. Debt
As with many alternative investments, even if the PPM says it is liquid or has a liquidity feature, there is a chance that if a mass liquidity event were to occur (also known as “a run on the bank”), it could put a strain on the company and therefore delay a partial or full early redemption. Debt
Finally, Yrefy offers a “roll-up” on an investment. In this case, a roll-up is best illustrated in a scenario where the investor has, for example, $100,000 in the three-year note. At the end of the term, the investor would like to stay in the investment but perhaps would like to move to the five-year term at 10.25% but doesn’t want to be locked in for five more years.
Yrefy will allow the investor to move to the five-year investment, locking in the interest earned in the previous three years (the earnings, paid or compounded are considered ensconced or earned). The investment will then roll over to the five-year note for two additional years at 10.25% and in the event of early redemption, the surrender charges would be based on two years, not five. Debt
Using an alternative investment structure like this may allow an investor to diversify a portfolio and create a flexible but fixed income. The investor can “ladder” income through the structure easily, something investment advisors struggle to do with products that are available in today’s market (in most cases, advisors must use multiple products through several companies to create an effective income ladder).
If income is an investor’s goal and they just don’t think the traditional products available in the marketplace can do what they want, then perhaps an alternative investment might fit their goals and risk tolerance.
To learn more about Yrefy SLP4, LLC (WinCome), please visit www.slp4.yrefy.com to review the Private Placement Memorandum and the risk disclosures. Only accredited investors can invest in Yrefy SLP4, LLC. To learn if you are an accredited investor please visit https://www.sec.gov/education/capitalraising/building-blocks/accredited-investor or contact Laine Schoneberger, Chief Investment Officer and Managing Partner, Yrefy, LLC at 877-400-9989 or firstname.lastname@example.org.
About the author
Laine Schoneberger is a retired Independent Registered Investment Advisor, with 25 years of experience as a financial adviser and planner to clients across the United States. As the Chief Investment Officer, founder, and Managing Partner of Yrefy he and his team are working to free thousands of student borrowers from burdensome student loan debt. Along with his partners Don Fenstermaker, Chairman and CEO, and Mary Jo Terry, COO, and the rest of the Executive team, there is over 250 years of experience in education finance, student lending, compliance, and capital raising.