As of June 30, 2024
Percent is committed to providing transparency regarding the performance of all deals on our platform. While the vast majority of deals performed as expected, some loans have faced challenges and entered workout status. This page provides detailed information on current workouts, including the underlying borrower, the events leading to the workout, the underwriter’s response, and the current status of recovery efforts.
We believe that transparency and open communication are essential to building trust with our investors. We are dedicated to providing regular updates on workout situations and working diligently to maximize recoveries on behalf of our investors.
Detailed Workout Summaries
SALT Lending: Crypto-Collateralized Loans
Background: In November 2022, following the collapse of the FTX cryptocurrency exchange and subsequent market turmoil, the SALT platform halted operations because of actions taken by California regulators, and missed payments followed.
Underwriter Response: After initial legal action, cooperative recovery efforts emerged. We reached a standstill agreement with SALT whereby they would re-collateralize the note and honor the deal’s terms.
- Principal at Start of Default: $3.7M
- Recovered So Far: $2.3M (62.6%)
- Remaining Principal Outstanding: $1.4M
Current Status: As SALT complied with the standstill agreement, has been cooperative, and payments to Percent have continued with a healthy cadence (including a $200k payment in June), Percent is working with its counsel and SALT on formally dismissing the legal case with the courts, with the expectation that payments will continue as agreed with SALT.
Zinobe: Colombian SME Lender
Background: In early 2023, Zinobe faced cash flow issues due to a default by its parent company on other debt, and misused funds assigned to Percent for operating purposes, leading to a violation of the participation agreement central to this deal and a default on the Percent note program.
Underwriter Response: We engaged legal counsel in Colombia and agreed on a recovery path with Zinobe. We enacted legal safeguards to maximize recovery and are actively monitoring the situation and keeping investors updated.
- Principal at Start of Default: $1.5M
- Recovered So Far: $0.6M (40.8%)
- Remaining Principal Outstanding: $0.9M
Current Status: Percent continues to monitor performance and consider any developments in its decisions concerning working out the ZIN2 2023-1 note. In the meantime, interest on ZIN2 2023-1 continues to accrue at 14.00% APY, and ongoing collections continue, enabling ongoing distributions.
Taiger: Exposure to a senior corporate loan
Background: Taiger was unable to make payment on its principal maturities in January 2024, as various developments affected their strategy, operations, and access to financing, including delays in its Spanish debt restructuring, a shift to smaller contracts related to industry-specific solutions, leading to defaults on junior debt, and delays in convertible note financing and Series C round.
Underwriter Response: Underwriters retained legal counsel in Singapore. Percent, AP-SF, and Taiger agreed on a 6-month forbearance agreement (with two 3-month extensions subject to certain terms) to waive both the event of default and foreclosure on the collateral (shares of Taiger) as well as allowing for PIK interest at the current rate in exchange for consent rights on capital raised, tighter restricted payments covenants, 20% equity warrant coverage, and Board observer seat. Additionally, all parties hosted a webinar for Percent investors to learn more about the business, forbearance plan, and next steps.
- Principal at Start of Default: $5.0M
- Recovered So Far: $0.2M (3.8%)
- Remaining Principal Outstanding: $4.8M
Current Status: Forbearance agreement in place and Taiger is proceeding under the terms agreed, focusing on business growth to generate cash flow and/or secure financing in the short to medium term. The deal continues to accrue interest.
Sharestates (SHA2 and SHA4): Exposure to a senior mortgage
Background: In January 2024, Sharestates notified Percent that the borrower associated with this transaction, Skyward TX LLC, was seeking refinancing of its outstanding loan with the lender in order to repay the outstanding principal balance. While seeking a refinancing, the underlying borrower did not make its contractual payments and the deal entered a workout.
Underwriter Response: Due to the underlying borrower’s failure to provide supporting refinancing or buyer documentation, Sharestates opted to initiate foreclosure proceedings on the property. Sharestates’ legal representative will issue a notice of default to the underlying borrower. As Texas operates as a ‘Non-Judicial’ state, the foreclosure process typically concludes within 8-10 weeks.
- Principal at Start of Default: $0.6M
- Recovered So Far: $0.0M (0%)
- Remaining Principal Outstanding: $0.6M
Current Status: Sharestates initiated foreclosure proceedings in Texas, which typically takes 6-8 weeks. They believe it will take approximately 12-18 months for the underlying mortgage to be paid off, including the time it takes to gain ownership of the property and sell it. Interest continues to accrue at 11.50% APY on the outstanding principal.
Sharestates (SHA3): Exposure to a senior mortgage
Background: Sharestates notified Percent that the borrower linked to the transaction, Attack Life II, LLC, failed to complete the construction project by the maturity date of the underlying mortgage, on March 1st, 2024. As the borrower was unable to fulfill the required principal payment by the maturity date of the SHA3 2023-1 note (March 28th), the offering defaulted.
Underwriter Response: Sharestates has identified a replacement individual to oversee the project’s completion. Sharestates is taking the necessary steps in ensuring that this individual has the requisite creditworthiness and expertise to effectively oversee the project. Additionally, the individual will be expected to bring the loan current, establish a three-month interest reserve, and collaborate with Sharestates on a comprehensive loan repayment plan.
- Principal at Start of Default: $0.2M
- Recovered So Far: $0.0M (0%)
- Remaining Principal Outstanding: $0.2M
Current Status: Sharestates informed us the transfer of property ownership has now been finalized. The new borrower is assuming the principal balance outstanding and will bring the loan current and provide a newly established three-month interest reserve. The loan term will be extended, providing the new borrower with five months to finish the construction. As per Sharestates, the estimated payoff for the property is projected to be in January 2025. Interest continues to accrue at 12.50% APY on the outstanding principal balance.
Gas Pos: Exposure to a senior corporate loan
Background: Quiq Capital syndicated approximately $2.4 million of this $6.0 million secured corporate term loan on the Percent platform on a pro-rata basis. In January 2024, Gas Pos did not make an interest payment and partial principal payment when due and the deal went into workout. This was amended shortly after but as Gas Pos has still not been able to secure alternative funding, they have consequently missed a new interest payment in April, and as such the transaction is back in workout status.
Underwriter Response: According to Quiq Capital, Gas Pos aimed to settle the entire outstanding balance of Quiq Capital’s loan that underlies the Percent note program by March 2024 by obtaining financing from USDA. As part of the arrangement, Quiq Capital’s outstanding loan would become subordinated to this new debt as it must be funded in a set of incremental tranches before the Gas Pos loan is repaid. Quiq Capital believed that allowing Gas Pos to secure this financing would preserve collateral value and facilitate a timely payoff of Quiq Capital’s loan maturing in December 2024. As of the end of January, and following the execution of the subordination agreement, Gas Pos made the accrued interest payments due in January, February, as well as advance payment for March accrued interest (held in reserve).
- Principal at Start of Default: $2.4M
- Recovered So Far: $0.2M (7.50%)
- Remaining Principal Outstanding: $2.2M
Current Status: The Underwriter and its special servicer continue to work on the Gas Pos loan towards a payoff. Gas Pos remains engaged with an investment bank as it works to determine the best path forward to monetize its merchant residual portfolio. The agent estimates that the portfolio’s value is at least 2x the outstanding loan balance, and conservatively, 1.5x the balance in a rapid sale scenario. Gas Pos indicated they are having meetings with its payment processing company regarding moving its retailers to the processor, which should make the portfolio more marketable to prospective buyers. The Underwriter’s special servicer advised the team to wait to see where indicative offers come in on the portfolio prior to negotiating extension documents.
Understanding Workouts
A loan enters workout status when the borrower fails to meet their payment obligations or violates the terms of their loan agreement. Workouts can occur for various reasons, including financial difficulties faced by the borrower, changes in market conditions, or unforeseen events. When a loan enters workout, the underwriter responsible for the deal takes proactive measures to address the situation and protect investor interests. This may include negotiating with the borrower, restructuring the loan, or pursuing legal remedies.
We will continue to provide regular updates on these workout situations, including any significant developments or changes in status. Investors are encouraged to review these updates and the associated deal documentation for the most current information.
—
We invite you to reach out to us with any questions or concerns you may have regarding specific workouts or the workout process in general. Our team is dedicated to providing you with the information you need to make informed investment decisions.