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Case Study: Percent’s First Offering with Real-Time Performance Data

 

First-ever note to feature real-time performance data

Percent’s inaugural offering with Wall Street Funding was our first-ever note to feature real-time performance data. In an investment sector otherwise known for being opaque, the level of transparency that debuted in August was unprecedented.

The $1,500,000 Series 2-A note matured on Oct. 8, 2019 and was the tenth note offered on our alternative investment platform. It earned investors an 11% APY.

Short Term Small Business Financing 2-A featured real-time performance data and earned investors an 11% APY with a 3-month duration.

What is Real-Time Data?

The real-time performance data offered by Percent provided investors with a view as to how the underlying assets collateralizing their notes were performing. This included both security-level and asset-level data. Not only could investors get a sense of the concentration, payment frequency, proceeds, and other details of the underlying assets, but Series 2-A investors benefited from having this data refreshed daily.

We believe making this information more widely available allows our investors to be more confident in their investments and ultimately provides our borrower partners more competitively-priced capital. This enhanced transparency in private credit markets is a win-win for both investors and asset borrowers.

Before Real-Time Data

One of the biggest barriers to efficiency in any market is asymmetric information. Typically, borrowers and initial purchasers of assets – from receivables to term loans – usually have the best information on those assets.

This is often the case in public markets but is especially true in private credit. Investors often have to settle for an initial static view of a portfolio and receive little interim asset-level reporting afterwards. Even in public securitization markets, investors may only receive quarterly or monthly reports at best.

In situations where performance data is lacking, investors tend to look for comparable assets for which historical data is available. However, these comparables may not always be relevant, especially considering successful underwriting, which varies considerably from one borrower to the next, is critical for asset performance.

For investors, this means it can be difficult to line up risk tolerance with available investment opportunities. If this reduces investor appetite, and Percent believes it does, then that means less accessible markets and higher funding costs for specialty finance companies.

With Percent’s Real-Time Performance Data

With real-time performance data available at the click of a button on Percent’s platform, investors now have access to a continuously updated picture of the asset pool they acquired exposure to through the note.

For Series 2-A, this underlying asset pool was approximately 100 cash advances extended by Wall Street Funding. This under-the-hood view provided a detailed picture of the portfolio on an asset-by-asset basis. This included information like the most recent collection date and the cumulative sum collected from a specific underlying obligor.

This is the part of the actual dashboard for 2-A’s real-time performance data. In this example, you can see a projected cash flow of $1.498M, but an actual cash flow to date of $4.479M.

When we take a portfolio-level view, investors found that our real-time performance data yielded valuable insights there as well. For Series 2-A, our performance data also incorporated the percentage concentration, geographic region, and industry of underlying obligors, giving investors a sense of the portfolio’s diversity.

Lastly, investors in our 2-A offering also benefited from seeing how these pieces all came together in the context of our note structure. Not only could investors see what the expected cash flows from the underlying assets were projected to be, but they could also examine what percentage of those proceeds would be available to pay back their investment under our participation agreements with the borrower.

The “Total Remaining Cushion” cell showed how much first-loss protection remained available to investors. This first-loss cushion was the amount of underperformance the borrower agreed to cover before investors would see any losses. For Series 2-A, this cushion was 15% of the total value of the expected cash flows and remained intact through the investment’s 3-month term.

Delivering Insights to Investors

In the context of our 2-A offering, this real-time performance data provided valuable insights. First, and most significantly, investors were able to see that cash flows realized on the underlying assets were already sufficient to repay the notes by August, well before the date they were set to mature. This occurred because of prepayments, which investors were able to gauge by comparing actual cash flows to those projected based on the terms of the underlying advances. Investors were also able to take comfort in the underlying asset pool’s diversification. The top-10 cash advances made up just under 40% of the portfolio.

Our real-time data feature was met with strong investor interest, indicating a strong value-add for BOTH our retail and institutional investors. This also portends more access to capital for borrowers willing to provide hyper-frequent interim reporting on their assets’ performance.

Delivering Capital to Borrowers

Wall Street Funding has already leveraged this investor interest to raise additional capital on our platform. Since closing on Series 2-A, Percent has launched two far-larger note offerings for Wall Street Funding. In August, we closed on Series 2-B, a $4.5 million note, our largest at the time, and in October, we rolled over and upsized our existing 2-A note into 2-C, providing Wall Street Funding even more capital with which to grow their origination volumes.

Although Series 2-A was our first offering featuring real-time performance data, it is just the beginning. Percent will continue bringing unprecedented transparency to what has traditionally been one of the most opaque asset classes in financial markets.

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