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Q1 2024 Performance: Resilience and Diversification in a Changing Market

Percent’s momentum from 2023 continues, driven by expanding partnerships and a focus on quality offerings.

In 2023, Percent closed the year with record momentum. Building on this success, we are pleased to report that a strong Q1 performance has solidified our position in the private credit space. This quarter saw the addition of new underwriters, borrowers, and investors, underscoring our marketplace’s ongoing growth and increasing sophistication.

Q1 2024 at a Glance

Our efforts this quarter have concentrated on forging strategic partnerships with reputable underwriters, introducing high-quality offerings to our marketplace, and enhancing our technological infrastructure to improve the investor experience.

New Underwriters: A Source of Diversification

Our commitment to building a three-sided marketplace is strengthened by our partnerships with underwriters. In Q1, we welcomed four new underwriters to our platform, each bringing unique expertise and offerings to our investors:

  • Heirloom ($3.7M across 2 deals): An alternative investment management firm focused on lowering portfolio volatility and risk.
  • Ichthus ($0.1M across 1 deal): A private investment firm specializing in flexible credit structures for growth sectors.
  • Era Global Technologies ($3.3M across 2 deals): A global investment partnership investing in category-defining tech companies.
  • Edly ($0.6M across 1 deal): A private student lending platform offering income-based repayment (IBR) loans.

These underwriters bring diverse expertise and varied deal structures, expanding the range of investment opportunities available to Percent investors.

Investor Marketplace Performance: Returns Driven by Resilience

In the last 12 months (Q1 2024 LTM), investors earned $19.9 million in interest with an average return of 14.3% after losses and fees. This underscores Percent’s continued ability to deliver attractive returns even in shifting market conditions. Read on for detailed performance from Q1:

Transparency: Workouts and Recoveries

We maintain an unwavering commitment to transparency. While workouts are an expected part of private credit investing, we proactively manage these situations to maximize investor outcomes.

We understand the importance of clear communication and keeping our investors informed. Here’s a comprehensive look at our historical and current workout situations:

  • Traderiver (2020, Jr. Corporate Loan, $2.61M charged-off) – Defaulted with no further action possible.
  • Northwest Capital (2021, Jr. Asset-Based Security, $5.2M charged off) – Ongoing lawsuit against NWC, no further actions planned.
  • Pulse Medical (2021, Sr. Asset-Based Security, $1.98M charged off) – Defaulted with no further action possible.
  • Indigoblue (2022, Sr. Asset-Based Security, Full recovery) – Fully repaid with post-maturity accrued interest. Experienced delayed amortization.
  • Sharestates (SHA6) (2023, Sr. Mortgage, Full recovery) – Fully repaid with post-maturity accrued interest.

Currently, there are four active borrowers with deals in workout and we are actively executing recovery plans. More details: 

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 CA 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: $3,664,239
  • Recovered So Far: $1,988,603 (54.3%)
  • Remaining Principal Outstanding: $1,675,636

Current Status: As SALT complies with the standstill agreement, we extended the arrangement by 8 months, now ending in June 2024. New collateral was pledged and collections continue, enabling ongoing distributions. Interest accrues at 13% on the balance, incentivizing further repayment. 

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: $1,542,662
  • Recovered So Far: $600,763 (38.9%)
  • Remaining Principal Outstanding: $941,899

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 the 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 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: $5,000,000
  • Recovered So Far: $190,199 (3.8%)
  • Remaining Principal Outstanding: $4,809,901

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: $645,000
  • Recovered So Far: $0 (0%)
  • Remaining Principal Outstanding: $645,000

Current Status: Sharestates initiated foreclosure proceedings in Texas, which typically takes 6-8 weeks. Sharestates anticipates gaining ownership of the property in May or June 2024. 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 

While we celebrate our successes, we remain vigilant in addressing the challenges within our marketplace. This includes managing defaulted deals and ensuring robust recovery strategies are in place. We maintain transparency with our investors by providing detailed reports and updates on our recovery efforts and the performance of our underwriting partners.

Looking Ahead: Opportunities in a ‘Higher-for-Longer’ Environment

As we move into Q2 2024, the prevailing theme in markets continues to be “higher-for-longer”—the expectation that high costs of capital will persist despite anticipated interest-rate cuts by central banks later this year. While this environment presents challenges, it offers a silver lining for the private credit market. 

As bank lending decreases and public contracts, the demand for private credit will continue to grow. We anticipate a growing demand for the flexible, customized financing solutions that Percent and our underwriter partners offer. This expansion will bring investors a wider spectrum of opportunities to balance their risk-return preferences. 

This “higher-for-longer” environment presents both challenges and opportunities for the private credit market. While raising interest rates and economic uncertainty may lead to a slowdown in traditional lending, the demand for flexible and customized financing solutions is expected to grow. Percent is strategically positioned to address this demand and capitalize on the evolving market landscape. 

Here’s how we plan to leverage the opportunities: 

  • Expanding Underwriter Partnerships: We continue to onboard reputable underwriters with diverse expertise and unique deal structures, providing investors with a wider range of investment options across various asset classes and risk profiles.
  • Focus on Quality Offerings: We maintain thorough due diligence processes to ensure that only high-quality deals are presented to our marketplace. This focus on quality will be even more critical in a “higher-for-longer” environment. In Q1 2024 we saw stronger growth in Asset-based notes versus Corporate Loans.
  • Technological Innovation: We are continuously investing in our platform’s technology to enhance the investor experience, improve efficiency, and provide greater access to deal information and performance data. 
  • Strategic Partnerships: We are actively exploring strategic partnerships with institutional investors and other key players in the financial industry to further expand our reach and capabilities. 

By focusing on these key areas, Percent is confident in its ability to navigate the challenges of the “higher-for-longer” environment and continue to be a leader in the private credit space. We are committed to providing our investors with competitive returns and access to a diversified range of high-quality investment options. 

Making Waves: Percent in the News

Our growth and innovation have not gone unnoticed. These appearances showcase Percent’s emergence as a leading voice in the private credit market. Here’s a select highlight of our Q1 features:

As we look ahead to the rest of 2024, we are more excited than ever about the opportunities that lie ahead. With our growing network of partners, our expanding investor base, and our unwavering commitment to transparency and innovation, we are well-positioned to continue our momentum and make an even greater impact in the world of private credit.

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