As of September 30, 2024
Percent is committed to providing complete transparency regarding the performance of all deals on our platform. While the majority of investments perform as expected, some loans may face challenges and enter workout status. This page provides detailed information on deals for which no further action is expected. These deals have either been partially or fully charged off (written off as a loss) or have been fully recovered.
We believe that open communication and transparency are crucial for building trust with our investors. We aim to provide regular updates on all deals, including those that have reached resolution after experiencing workout status. By sharing both successful recoveries and instances where losses occurred, we offer a comprehensive view of the private credit landscape.
Deals with No Further Action Expected
Charged-Off Deals
We provide a comprehensive review of historical deals that have concluded with either partial or full charge-offs or complete recoveries:
Traderiver – Defaulted with no further action possible.
Deal Type: Jr. Corporate Loan
Description: Solar installation financing
Default Description:
- Borrower onboarded to Percent marketplace very early on in the platform’s life (December 2019) and leading right into COVID-19 a few months later.
- The deal had single obligor risk and relied on future cash flows generated by a small set of unsecured working capital assets due from a single business.
- COVID-19 pushed this single obligor into bankruptcy due to government-mandated business restrictions, which halted cash flows. Additionally, another lender to the borrower ceased its forbearance, leading to a default and triggering the initial workout status of the deal.
Workout Description:
- An exchange offer to impacted investors was conducted that allowed investors to roll their exposure into a longer dated note with low participation,
- The underlying company filed for bankruptcy and given our unsecured working capital position, there was no recovery value left over for unsecured creditors.
Total Principal Exposure at Time of Default: $2.8M
Date of Initial Default: May, 2020
Total Recoveries: $0.2M
Total Principal Charge-Offs: $2.6M
Northwest Capital – Ongoing lawsuit against NWC, no further actions planned, and no recoveries expected.
Deal type: Jr. Asset-Based Security
Description: Factored receivables
Default Description:
- Borrower onboarded early on in the platform’s life (November 2019) and had been making regularly scheduled interest payments all throughout 2019 and 2020.
- Borrower missed a payment in May 2021 and the deal went into default (initial workout status).
- Attempted to work with them to understand how to sell the collateral or let it roll off and wind down the program.
Workout Description:
- Took an active approach but deadlines were continuously missed so a formal demand letter was sent. Percent received consent to an audit of their books and records to verify proof of assets and collateral and subsequently discovered that the underlying assets did not exist, and loan tapes were fraudulent to Percent and other lenders.
- Percent filed a lawsuit for damages, an involuntary bankruptcy petition, and a complaint against the principals of the company for damages from fraudulent and negligent misrepresentations.
- Since then, several managers of Northwest Capital Investors, LLC and affiliated entities were indicted on multiple felonies in a decade-long scheme to deceive and defraud investors. The publicly available indictment, which was unsealed on April 11, 2023 outlined how Percent and its investors, along with other investors and financial institutions, were recognized as victims of fraudulent activities in this scheme.
- The civil case that Percent brought up against NWC and its principals is with the courts, but as of August 30, 2023, the judge assigned to the case ordered a Stay of Proceeding due to the ongoing Criminal Case.
Total Principal Exposure at Time of Default: $5.2M
Date of Initial Default: May 2021
Total Principal Recoveries: $0.0M
Total Principal Charge-Offs: $5.2M
Pulse Medical – Defaulted with no further action possible.
Deal Type: Sr. Asset-Based Security
Description: Factored receivables and purchase order financing
Default Description:
- Borrower onboarded in August 2020 and made all regularly scheduled interest payments throughout 2020 and 2021.
- During 2021, the Borrower increased exposure to supply chain purchase order financing within the collateral pool, which effectively involved Pulse purchasing receivables related to these transactions in order to import medical supplies into the United States with end payors being wholesalers, hospitals, or governments. The primary product associated with the transactions were medical gloves.
- At the end of 2021, the borrower informed Percent of ongoing delays in the sale processes given ongoing supply chain issues and remaining impacts of COVID-19.
Workout Description:
- Percent initiated weekly calls with Pulse at the end of 2021, took control of their collections account, and visited the warehouse to verify the existence of the inventory.
- Upon default, the borrower was in meaningful discussions with another capital provider to raise funds and refinance the Percent note program. While these conversations were materially positive upon default, Pulse was unable to secure capital from a third party.
- The market for medical gloves deteriorated post-COVID and neither Percent nor Pulse could secure bids at close to the value of the notes outstanding.
- By November 2023, all of the remaining glove inventory was released at market-clearing prices for a recovery of $281,474, a recovery rate of 12.4%.
Total Principal at Time of Default: $2.3M
Date of Initial Default: February, 2022
Total Principal Recoveries: $0.3M
Total Principal Charge-Offs: $2.0M
Fully Recovered Defaults
Indigoblue – Fully repaid with post-maturity accrued interest
Deal Type: Sr. Asset-Based Security
Description: Canadian residential mortgages
Default Description: The note program experienced slower than expected amortization payments as there was an elongated timeframe for underlying borrowers to repay or refinance their existing mortgages, partly due to conditions in the Canadian housing market and the frictions involved in refinancing mortgages or selling properties. As the borrower missed the principal payment in June 2023, the deal went into workout.
Workout Description:
- As soon as the transaction entered its amortization period in December 2022, collections were allocated to paying down the principal on the Percent note program as soon as possible.
- These repayments also enabled the proactive repurchase of some of Indigoblue SPV’s loans by other affiliates of Indigoblue.
- For those mortgages not being repurchased or sold, the underlying borrowers of these loans looking for refinancing would take about 2 incremental months to be repaid, and if the property was sold by these underlying borrowers, it would normally take up to 5 months to work out.
- Amortization payments by IndigoBlue continued on a healthy cadence past the maturity date of June 2023, with full recovery plus accrued interest finally being paid out by Indigoblue by September 2023 (3 months after maturity).
Total Principal Exposure at Time of Default: $0.99M
Date of Initial Default: June, 2023
Total Principal Recovered: $0.99M
Total Principal Charge-Offs: $0.0M
Sharestates – SHA6 – Fully repaid with post-maturity accrued interest.
Deal Type: Sr. Asset-Based Security
Description: Multi-family residential mortgages in the U.S.
Default Description: Sharestates notified Percent that the underlying borrower associated with this transaction, Team Leem Real Estate, LLC, did not make its interest payment expected for February 2024, and as such the offering has been marked as “In Workout” on the Percent platform, despite final maturity for the note expected for January 2025.
Workout Description: Sharestates relayed that their Servicing team had reached out to the borrower multiple times to collect payment and the full early payment of principal plus the pending accrued interest was finally paid in March 2024 (within one month of the deal entering workout state).
Total Principal Exposure at Time of Default: $0.1M
Date of Initial Default: February, 2024
Total Principal Recovered: $0.1M
Total Principal Charge-Offs: $0.0M
SALT Lending – Fully repaid with post-maturity accrued interest
Deal Type: Sr. Asset-Based Security
Description: Crypto-Collateralized Loans
Default Description: 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 amortization payments that were due to Percent investors, leading the program into a default and workout status.
Workout Description:
- Percent filed a lawsuit against Salt in December 2022. This lawsuit demanded compensation for damages equal to all amounts owed to SLT1 2022-6 investors.
- Following the lawsuit cooperative recovery efforts emerged and Percent reached a standstill agreement with SALT in April 2023 whereby SALT would re-collateralize the note and honor the interest due on the note.
- As part of the work-out plan with SALT, they were requested to remove any underlying assets originated in California from the collateral pool and replace them with other performing assets. The new pool of assets pledged as collateral had longer maturity terms, extending the window of repayment, with the majority of the loans expected to pay back by 2025.
- SALT was required to continue to sweep the collections on a weekly cadence to Percent, with Percent expected to continue making distributions to investors on the 22nd of every month.
- As interest and principal payments continued to be made, SALT and Percent agreed to extend the standstill agreement to June 2024 and finally in July 2024 dismissed the legal case with the courts.
- In September 2024, SALT repaid Percent investors in full. The final distribution represents full principal repayment, and full accrued interest throughout the months the offering was in workout.
Total Principal Exposure at Time of Default: $3.66M
Date of Initial Default: November, 2022
Total Principal Recovered: $3.66M
Total Principal Charge-Offs: $0.0M
Lessons Learned and Continuous Improvement
Each workout presents an opportunity for learning and growth. Percent carefully reviews each situation to identify areas for improvement in our underwriting, risk assessment, and workout management processes. As a result of past experiences, we have implemented several enhancements, including:
- Enhanced Collateral Verification: Partnered with a collateral audit firm for most Percent-underwritten asset-based transactions to deter fraud and ensure the accuracy of collateral valuations.
- Strengthened Collateral Requirements: Implemented initial and ongoing minimum collateralization requirements for asset-based transactions, including during refinancing, to mitigate risk.
- Real-Time Monitoring: Leveraging Thomson Reuters CLEAR for real-time alerts on key individuals and entities associated with our platform.
- Enhanced Deal Comparison Tools: Improved our deal pages with a comprehensive comparison tool and summary tables to facilitate informed decision-making.
- Strategic Shift in Underwriting Focus: Decreased underwriting of inaugural deals in the venture debt space, focusing instead on asset-based deals and corporate loans with established track records.
We believe that continuous improvement is key to providing the best possible experience for our investors. We remain committed to providing our investors with detailed reports, hosting webinars for affected investors, and offering regular updates on recovery efforts through email, surveillance reports, and critical updates. This transparency allows our investors to make informed decisions and understand the potential risks and rewards of private credit investing.
Mitigating Risk Through Diversification
While these cases highlight the potential risks in private credit investing, they also underscore the importance of portfolio diversification. We encourage our investors to consider a diversified approach to mitigate potential losses from individual deals.
For investors seeking broad diversification with minimal effort, we recommend exploring our Percent Blended Notes. These notes offer exposure to a curated selection of deals across various sectors and asset types, providing built-in diversification and professional management.
Remember, while diversification is a key risk management strategy, it does not guarantee against loss. We advise all investors to carefully review deal documentation, consider their risk tolerance, and consult with financial advisors when making investment decisions.
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Transparency is a cornerstone of our commitment to our investors. By providing detailed information on past workouts and the lessons we’ve learned, we strive to create a more informed and resilient investor community.
We encourage you to explore the resources available on our platform, including details available on each deal page and educational content available on our website, to make the most informed investment decisions. As always, our team is available to answer any questions you may have.