Diversified Art Debt Portfolio II

Annualized yield3

Term3

37 months

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Status

Waitlist open

Remaining

Accepting $10,000 - $500,000 investments

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Accepting $10,000 - $500,000 investments

Overview

A scheduled monthly-interest loan that is secured by 85 artworks by 66 different artists.

  • Attractive income: Generate expected monthly interest above traditional fixed income.
  • Principal protection: The loan amounts are approximately half of the appraised value of their underlying artwork collateral. In an event of default and subsequent liquidation, the high value of artworks backing the loans is expected to protect investor capital and any accrued interest.
  • Low correlation: Art prices have remained stable in prior periods of equity downturn, making it a strong form of loan collateral.
  • Track record: This portfolio is the successor to Diversified Art Portfolio I, which was initially launched in 2019 and has consistently paid investors on a monthly basis at the target yield. Additional loans and collateral are expected to be added to the portfolio over time.

Performance Update

• View the most recent update for Diversified Art Portfolio I, the predecessor of Diversified Art Debt Portfolio II.

Premise

Investment details

What am I investing in?

  • A pool of three distinct first lien loans, each secured by separate diversified collateral pools of art, consisting of a combined 85 unique pieces of 'Contemporary' and 'Old Masters' artworks by 66 renowned artists including Kerry James Marshall, Mark Bradford, Titian and Simone Martini.
  • The total combined third-party appraised value of all artworks backing the underlying loans is over $94M. The valuation methodology utilized is discounted to reflect the net sale proceeds that are expected to be received if the artworks were sold in the event of a borrower default.
  • In addition to the conservative valuation, the portfolio of loans has a loan-to-value (LTV) ratio of ~51.2%, meaning that before any fees and expenses related to collection, the artworks would need to sell for only 51.2% of their appraised value to fully recoup investor capital. Should a default event occur, Yieldstreet has experience effectuating successful work out strategies to help recover investor capital.
  • As part of the underwriting process, the ultimate beneficial owners (UBO) of each underlying loan has also provided a personal guarantee, so that the UBO will be required to make up the difference if loan servicing obligations are not met.
  • All collateral pieces are reappraised by a third-party appraiser on an annual basis to ensure the maximum permitted LTV threshold is not exceeded, aiming to ensure that there is always a cushion to help protect investor capital.

Investment strategy

What is the value proposition?

  • This offering is a way for investors to potentially generate stable income on a monthly basis from an investment that incorporates a level of principal protection given that the loans' amount is substantially less than the appraised value of the artworks.
  • The level of income expected to be generated by this offering is above traditional fixed income investments.
  • An investment in Diversified Art Debt Portfolio II is expected to provide investors with diversified exposure to several art-backed loans, reducing concentration risk for investors.

Behind the investment

Who is the originator and how was it diligenced?

  • Athena has originated and underwritten over $620M in art-backed loans since its inception in 2015. Athena focuses on the premium, blue-chip segment of the art market, lending against works by artists that have exhibited market depth and relative liquidity. Since inception, the originator has had 16 transactions fully repay all principal and has not realized any losses.
  • The artwork collateral is all valued by an independent, third-party appraiser. The Originator also retained museum conservators to physically inspect each piece and to issue a report on the artworks’ condition. These condition reports and valuations were considered in deriving an appropriate LTV and structure for the portfolio of loans.
  • In addition, the artwork collateral is all insured by standard all risk fine art policies underwritten by insurance companies with an A.M.
  • Whenever possible, Athena aims to maintain possession of the collateral backing the underlying loans. The collateral is primarily stored in secure fine art storage facilities so that the quality of works is preserved and in the lender's physical possession should the lender need to sell the artworks in the event of borrower default. Should the collateral be held in borrower’s possession, Athena will conduct location checks at least once annually and will maintain access agreements with the borrowers, granting access to the works.
  • Before any loan is added to the portfolio, Athena will receive certificates on each piece of artwork collateral from an international database provider that monitors lost, stolen and disputed artworks. These certificates state that there are no known reports that the work has ever been lost or stolen. Legal searches, including UCC liens, bankruptcy, judgments, tax and litigation in relevant jurisdictions, are also run to assess potential contingent liabilities of the obligors and certain affiliates.

Market backdrop

Why should you consider investing?

  • In this turbulent economic environment, investing in true asset-backed loans may provide investor principal with protection because the collateral can be sold to reduce outstanding amounts owed should a borrower fail to meet repayment obligations.
  • By looking at historical data from instances of wars and economic recessions, we can draw some conclusions about how art prices may behave should these events occur during the life of the investments.
  • Based on MeiMoses, the leading historic art index, during the last major global financial crisis, auction prices fell by roughly 27.2% between 2007 and 2009. However, for comparison, during this same time period, the S&P 500 fell 57% from its peak in October 2007 and hit a 12-year low in early March 2009.
  • Moreover, by 2011, total art sales had rebounded and matched 2007 levels. By comparison, the S&P 500 took an additional two years, reaching pre-crisis trading levels in 2013. This indicates that art values may be less impacted than other asset classes during downturns and that the art market has historically demonstrated a quicker rebound than the equity markets.
  • The art market is also becoming more liquid. In the last 10 years, turnover has doubled. In the last 20 years, it has multiplied by 31X. Increased liquidity and turnover suggests that the loans' collateral could be sold efficiently and effectively in the event of borrower default and the need to recover proceeds.

Essentials

Please refer to the Series Note Supplement for more details about this offering.

Capital structure

Where does Yieldstreet lie in terms of priority?

  • Yieldstreet investors will finance the subordinated position of each loan added to the portfolio. The subordinated position ranks behind the senior lender.
  • As more loans are added to the portfolio, investors are expected to hold a diversified pool of subordinated position in each of the loans that comprise this portfolio.

Cash flow

How do I get paid?

  • Investors are expected to earn monthly interest payments.
  • The portfolio’s underlying loans will have varying maturity dates and as these loans repay in accordance with their respective terms, investors can expect their pro rata share of principal to be repaid.

Important Notes

How is this offering related to Diversified Art Debt Portfolio I?

  • Similar to Diversified Art Debt Portfolio I, Diversified Art Debt Portfolio II has a senior loan from a financial institution secured by a first priority security interest in the loans.
  • While there are be two distinct offerings, both the loans held by Diversified Art Debt Portfolio I and Diversified Art Debt Portfolio II have the same senior loan and are cross-collateralized (as the loans currently included in Diversified Art Portfolio I are today).
  • This makes it possible that an investor in Diversified Art Portfolio I or Diversified Art Debt Portfolio II may become exposed to losses unrelated to the loans in the offering they are invested in. Please refer to the Series Note Supplement for additional details.
  • Generally, we expect that Diversified Art Portfolio I, Diversified Art Debt Portfolio II and any future funds having a similar investment purpose will enter into agreements to provide that any potential losses in connection with the senior loan, including the cross-collateralization described above, are allocated in a fair manner based on the loans that are held by Diversified Art Portfolio I, Diversified Art Debt Portfolio II and such future funds.
  • Over the next 6 months, it is expected that loans comprising Diversified Art Portfolio I will be repaid or refinanced into Diversified Art Portfolio Debt II.
  • Diversified Art Portfolio I was first offered on the platform in 2019. Since launch, the portfolio has performed in line with expectations and has paid all interest due on a monthly basis.
  • Investing in private markets and alternatives, such as this offering, is speculative and involves a risk of loss, and those investors who cannot afford to lose their entire investment should not invest. Returns are not guaranteed.

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  • Returns & Management fees

    Ann'l management fee

    1.0%

    Target ann'l net yield

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  • Schedule

    Payment schedule

    Monthly

    Term

    Date

    Target term

    38 months

    Interest type

    Actual 360

  • Structure

    Tax document

    1099-INT

    Offering structure

    BPDN

    Ann'l flat expense

    0.25%

Docs

This offering page describes only certain aspects of the offering ("Offering") of the securities issued by YS ALTNOTES II LLC ("Issuer"). The Offering is made only by means of the Private Placement Memorandum dated August 17, 2022 and the Series Note Supplement relating to the Offering (collectively, the "Offering Documents"). The information on this offering page is a summary of the Offering, does not purport to be complete and should not be considered a part of the Offering Documents, or as incorporated in the Offering Documents by reference or as forming the basis of the Offering. No person has been authorized to give any information or to make any representations other than those contained in the Offering Documents or in any marketing or sales literature issued by the Issuer or Yieldstreet Management, LLC, as adviser thereto, and referred to in the Offering Documents, and, if given or made, such information or representations must not be relied upon. All investors must read the Offering Documents in their entirety prior to investing in the securities.

Investing in private markets and alternatives, such as this offering, is speculative and involves a risk of loss, and those investors who cannot afford to lose their entire investment should not invest. Returns are not guaranteed.