Recent Facebook advertisements have promoted Worthy Bonds as
an investment that pays 5% interest.
Worthy Peer Capital’s website, https://worthybonds.com/,
explains that its Worthy Bonds are sold in increments of 10 dollars, are fully secured by assets having a value greater than the loan, and can be
cashed in anytime. Too good to be true?
The
bond offering is qualified under Regulation A by the Securities Exchange Commission (SEC), but that does not mean it is as
safe as Worthy’s website seems to say. The SEC’s Regulation
A bulletin cautions that “Investments in startups and early-stage ventures are
speculative and the businesses may fail.”
Worthy
Peer Capital’s Annual Report for 2018 raises some unsettling facts. Worthy’s website suggests that their business
model is to make secured loans to small businesses, but it can actually also use 40%
of their bond proceeds for other investment activities:
“We provide at least 60% of our assets for (i) loans to
manufacturers, wholesalers, and retailers secured by inventory and/or
equipment; and (ii) purchase order financing. To a lesser extent (not more than
40%), we may also provide (i) secured loans to other borrowers; (ii) acquire
equity interests in real estate; (iii) make fixed income investments; and (iv)
provide factoring financing, provided the amount and nature of such activities
do not cause us to lose our exemption from regulations as an investment company
pursuant to the Investment Company Act of 1940.” (Page 3)
As of
March 19, 2019, Worthy had raised $4,780,000 from bond sales, but had not succeeded
in placing all of it in loans for businesses and real estate. So how do they
pay the interest on their bonds?
“Interest on the proceeds from our Regulation A+ offering
will not cover interest payments accruing on the bonds or our operating
expenses. Accordingly, until such time
as we are able to generate significant income from the investment of the
proceeds we will be required to utilize cash on hand to make the interest
payments which will reduce the amount of proceeds available for loans by us.”
(Page 6)
Until
the company’s loans are profitable, they are using the cash raised from the
offering to pay interest. Investors have also successfully cashed out $369,000 in
bonds, as they can do so anytime. This isn’t sustainable, as the report states:
“The Company generated net losses and had cash used in
operations of approximately $143,000 and $45,000, respectively, for the year
ended December 31, 2018. At December 31,
2018 we had a working capital deficit, shareholder’s deficit and accumulated
deficit of $1,203,680, $3,680 and $193,220, respectively. These conditions raise substantial doubt
about the Company’s ability to continue as a going concern for a period of
twelve months from the issuance date of this report. During 2019, the Company
continues to incur losses, however, a Form 1-A Regulation A Offering Statement
allows the Company to continue to raise capital.” (Page 9)
The
viability of Worthy Peer Capital is important, because the Worthy Bonds do not directly
entitle the purchasers to the assets securing the loans made by Worthy, as succinctly
explained in the report:
“Worthy
Bonds are our full and unconditional obligations. If we are unable to make
payments required by the terms of the notes bondholders will have an unsecured
claim against us. Worthy Bonds are therefore subject to non-payment by us in
the event of our bankruptcy or insolvency. In an insolvency proceeding, there
can be no assurances that bondholders will recover any remaining funds.
Moreover, bondholder claims may be subordinate to that of any senior creditors
and any secured creditors to the extent of the value of their security." (Page
8)
Worthy
Bonds are not an outright scam or ponzi scheme. They are unrated and unsecured
bonds in a company that makes business loans, with no evidence that the company
will be around to pay back the bonds with interest. Not worth(y) the risk.
Scam
|
Very Risky Investment
|
Reasonable Investment
|
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