There’s been an active discussion in the investor community about how Sandfield Capital loans are protected, particularly the insurance behind them. Some of that discussion has drawn conclusions we’d like to correct, so here is the structure set out in full.
The short version is that there are two distinct layers, and they do different jobs. Mixing them up is where most of the confusion has come from.
Layer one: the Buyback Obligation
This is the layer that applies to you directly as an investor.
Sandfield Capital loans carry a Buyback Obligation. If a loan becomes 60 or more days late, Sandfield is contractually required to repurchase it, and that repurchase applies to the full repayment: outstanding principal together with the interest you have earned.
One detail worth knowing, because it has been the subject of some speculation: interest continues to accrue for the entire time a loan sits in Buyback Initiated status. Your return is not frozen while the repurchase works through. You keep earning across that period.
This is the same mechanism that applies across Loan Originators on Income, and it’s the obligation to point to when asking what happens if a borrower stops paying.
Layer two: the insurance, and what it applies to
There has been some discussion about what this insurance is and what it attaches to, so it’s worth setting out precisely what applies.
The policy provided by Accelerant Insurance Europe SA applies to the loan owed by the borrowing law firm. If the borrower defaults, the insurer compensates for the amount owed on that loan. Accelerant Insurance Europe SA holds an A- (Excellent) rating from AM Best, a globally recognised rating agency.
It’s worth being clear about how repayment works alongside this. Repayment on these loans is tied to the financial stability of the borrowing law firm and to the outcome of the litigation being funded. Law firms repay from litigation proceeds, their own operating funds, or other financing arrangements. The insurance sits behind that, responding where the borrower does not repay.
The named beneficiary of this policy is SFC4, Sandfield’s ring-fenced SPV, which holds the claims, rather than individual Income investors. It stands behind Sandfield’s ability to meet its Buyback Obligation, which is the layer that faces you.
Why there’s no Cashflow Buffer or Junior Share
Investors have correctly noticed that Sandfield loans don’t have a Junior Share or a Cashflow Buffer, and some have read that as thinner protection. The reason is structural, not that protection is reduced.
Both of those features are sized using a Loan Originator’s loan repayment history. They are calculated against observed performance. The same analysis was performed for Sandfield; however, because the loans Sandfield originates are insured at the underlying level, it is the insurance – rather than observed loss performance – that drives the outcome. On this basis, the advance rate on these loans is 100%, with no separate Junior Share or Cashflow Buffer, which is why Sandfield retains no residual stake once Income investors fund a loan.
So the absence of those two features follows from how these loans are insured. It is not an indication that fewer protections apply.
Where the money actually flows
Sandfield, the operating company, is separate from SFC4, Sandfield’s SPV, which holds the claims. SFC4 is ring-fenced and structured to be bankruptcy-remote, meaning its assets, liabilities, and risks are held apart from those of the operating company. SFC4 assigns the claims to the Income SPV.
When a law firm repays, funds flow to SFC4, then to the Income SPV, then to Income investors. If the insurance is triggered instead, SFC4 is the named beneficiary and receives payment directly from the insurer, and the funds follow that same path.
The practical effect is that if Sandfield, the operating company, were to face financial difficulty, this flow is structured to continue unchanged, because the claims and the insurance benefit sit with SFC4.
Why you may see Sandfield loans marked as late
This comes up regularly and is worth separating from borrower default.
A loan showing as late does not necessarily mean the underlying law firm has failed to pay. In practice, late status on Sandfield loans is most often a matter of repayment timing on the underlying litigation cases: some cases repay faster and some slower, depending on the pace of the court and the jurisdiction involved. For this reason, an average expected maturity is applied to each Sandfield loan, which might not perfectly reflect the timing of the final repayment. The status reflects how actual repayments compare against that average schedule, which is different from whether the borrower has met its obligation. As a result, a meaningful share of loans will continue to be bought back by Sandfield – a function of the timing of cash flows rather than the performance of the underlying loans.
If a loan is 60 days late, the Buyback Obligation applies, and as noted above, your interest continues accruing throughout.
Questions
If anything here is still unclear, write to us at hello@getincome.com.
