As of September 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
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: $1.54M
- Recovered So Far: $0.63M (40.81%)
- Remaining Principal Outstanding: $0.91M
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. Given collections have slowed in recent months, Percent is actively exploring selling the remaining portion of the portfolio.
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: $5.00M
- Recovered So Far: $0.19M (3.8%)
- Remaining Principal Outstanding: $4.81M
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 and a second webinar with the company is scheduled for October 2024 where they expect to share news on the restructuring process in Spain.
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: $0.65M
- Recovered So Far: $0.0M (0%)
- Remaining Principal Outstanding: $0.65M
Current Status: According to Sharestates, the foreclosure of the underlying property was completed on August 6th, but Sharestates did not secure a bidder. The underlying property is now in REO status, and Sharestates’ attorney has completed updating the foreclosure deed, and waiting for the deed to be recorded. Sharestates has already obtained a property manager since the property already has tenants. Since there are no longer any potential buyers, Sharestates will be listing the property for sale and expecting repayment in the next 6 to 12 months. 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: $0.25M
- Recovered So Far: $0.0M (0%)
- Remaining Principal Outstanding: $0.25M
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: $2.42M
- Recovered So Far: $0.18M (7.50%)
- Remaining Principal Outstanding: $2.24M
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, but no written Indications of Interest have been received.
US ATM ASI: Exposure to a senior corporate loan
Background: Quiq Capital syndicated approximately $3.64 million of this $5.5 million secured corporate term loan on the Percent platform on a pro-rata basis. The underwriter’s Quiq Income Fund, LP continues to retain the balance of the exposure, equivalent to approximately $1.86 million. In July 2024 US ATM did not make an interest payment when due on July 1, 2024 and the deal went into workout.
Underwriter Response: According to Quiq, After communications with Quiq Capital, US ATM ASI said that they plan to make additional payments once some of their larger clients make payment on monthly payables due to US ATM ASI. In June, the Underwriter executed an extension agreement for the existing US ATM ASI loan through August 1, 2024, as US ATM worked through refinancing and/or loan payoff strategies. More recently they begun exploring an outright sale of the company to repay the loan as well. Still, US ATM ASI is continuing to work with its investment bank to evaluate takeout lenders. Quiq Capital and Percent have received some updates and confidential materials prepared by the investment bank to track progress.
- Principal at Start of Default: $3.64M
- Recovered So Far: $0.00M (0.00%)
- Remaining Principal Outstanding: $3.64M
Current Status: The most recent financial statements of US ATM ASI show the company realized a net loss of approximately $0.9 million on revenues of approximately $8.0 million in Q1 2024 ending Q1 2024 with approximately $819,000 in cash. US ATM continues to have discussions with prospective buyers for the sale of their companies. Quiq has been negotiating extension and modification documents with US ATM, and they anticipate documentation will be executed in early October. US ATM remains engaged with 3 potential buyers, and the underwriter believes they will close with one before end of year. Quiq believes the value of the collateral remains well above the unpaid principal balance, accrued interest and fees. Quiq Capital continues to push and have catch up meetings with the Borrower every couple of days.
Fiberight: Exposure to a senior corporate loan
Background: The borrower did not make a payment when due on July 31, 2024 so the transaction was categorized as in workout in August 2024 (after the grace period ended). Fiberight had been working on refinancing the loan without outside capital. In communications with the third-party underwriter for this transaction, New Technology Ventures, and Percent, Fiberight has said that they have agreed to a hard deadline with an investor providing Fiberight with equity capital. This date was set to August 19. By then, Fiberight expected to raise enough capital to repay the entire note’s principal and accrued interest balance but this did not materialize.
Underwriter Response: New Technology Ventures and Percent did receive some updates and confidential materials related to the contemplated refinancing, which included a signed term sheet. When the transaction fell through, Percent was notified of the company’s intent to go through a voluntary liquidation. The Underwriter is awaiting the liquidator’s plan.
- Principal at Start of Default: $0.54M
- Recovered So Far: $0.04M (7.51%)
- Remaining Principal Outstanding: $0.49M
Current Status: On August 19, 2024, Percent requested a further update from Fiberight regarding the refinancing of the Percent platform loan referred to in the prior email. Percent did not receive an update from Fiberight. On Friday, August 23, Percent received a notice from the company’s hired restructuring and insolvency advisors stating that the company’s anticipated financing was not received and Fiberight is now pursuing a voluntary liquidation. Meetings of members and creditors were adjourned to October 1st. Charles Hamilton Turner and Jack Callow from Opus Restructuring LLP were formally appointed as Joint Liquidators. Percent has submitted certain requested information to the liquidators.
The Cloud: Exposure to a senior corporate loan
Background: Littlemees Limited (“The Cloud” or “CLD”) communicated on March 15, 2024 that the CEO of The Cloud, George Karam, had resigned from his position. According to the Board of Directors of CLD, this outcome was the result of fundamental strategic disagreements between Georges Karam and the Board of Directors. In summary, Georges Karam wanted to develop CLD’s business in non-Gulf Cooperation Council (“GCC”) countries while the Board of Directors wanted to focus on GCC markets, particularly Saudi Arabia and the United Arab Emirates. In May 2024, Percent and Aluna received information from The Cloud’s management and Board of Directors about the The Cloud’s deteriorating financial condition following Georges’ departure and need to raise sufficient equity capital as well as the need to restructure CLD Notes in order for The Cloud to execute on its business plan to become cash flow positive and eventually repay CLD Notes. On September 10th, following missed principal and interest payments, the transaction moved into “workout” status.
Underwriter Response: Over the course of May, June and July, Percent and Aluna specifically:
- Negotiated a restructuring proposal for CLD Notes directly with The Cloud and it’s Board of Directors that contemplated a variety of terms and conditions intended to support The Cloud’s business plan and financial needs as well as facilitate the successful separation of business entities, including but not limited to: i) An extension of the maturity by 24 months and deferral of interest until profitability is sustained in order to extend The Cloud’s cash runway in exchange for equity warrants and additional common shares to provide some potential upside compensation for CLD Note holders, ii) Requirement that The Cloud and its shareholders raise at least $2 million in new equity for working capital needs, iii) Provide right of first refusal on transferring certain international assets to Georges Karam to assist the separation process (namely the divestiture of certain loss-running non-GCC subsidiaries), iv) Providing Percent a variety of covenants, consent rights and representations in order to protect CLD Notes, v) engaged Eptalex as local counsel to advise us on a variety of matters including a proactive analysis on liquidation scenarios for The Cloud to ensure our security would be recognized in local courts and formulating a plan of action in the event the CLD Notes restructuring was unsuccessful.
- Concurrently collaborated with Georges Karam to protect KBX Note holder interests to create a new UK Holding entity that currently and will own all international non-GCC operations including the assets acquired from the original proceeds of the KBX Note (a separate offering on the Percent platform which funded a specific subsidiary of The Cloud).
- Principal at Start of Default: $2.00M
- Recovered So Far: $0.00M (0.00%)
- Remaining Principal Outstanding: $2.00M
Current Status: After Aluna and Percent communicated the acceptance of the final CLD Notes restructuring proposal in late July, we learned in August that the Board and a faction of existing venture equity shareholders that are aligned with the Board have decided to vote in favor of liquidating the company instead. While Aluna and Percent attempted several times to bring the Board back to the negotiating table, it has become apparent that the Board: i) No longer has any interest in growing The Cloud according to their own proposed business plan and ii) Was unable to raise enough of the equity capital required for the restructuring proposal. Aluna and Percent are now actively engaged with Eptalex on recovery efforts. The CLD Note is the only known secured debt obligation of The Cloud according to our counsel’s searches, so irrespective of who initiates the process or puts forth a liquidator for the court to approve, the liquidator will work in CLD Notes holders’ best interest.
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.
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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.