Default & collection

Svim Finance regularly monitors investment pool performance and treats any default and counterparty risk seriously. If a real-world asset tokenization liquidity pool starts seeing loan default by borrowers, Svim Finance team starts the subsequent critical processes of collection and recovery to mitigate risks and protect the interests of investors. Here’s an overview of the features and the process involved, along with possible outcome scenarios:

Features of Loan Default Management

Monitoring and Notification:

• Automated Monitoring: Continuous tracking of loan payments to detect defaults promptly.

• Notification: Immediate alerts to the borrower and stakeholders upon detecting a missed payment.

Grace Periods:

• Defined Period: A specific period during which the borrower can make overdue payments without incurring severe penalties.

• Terms and Conditions: Clearly outlined in the loan agreement, detailing the duration and any additional fees.

Collection and Recovery Efforts:

• Initial Contact: Contacting the borrower to understand the reason for default and to negotiate repayment.

• Payment Plans: Offering revised payment schedules or restructuring the loan to help the borrower catch up on payments.

Default Classification:

• Initial Default: The first instance of a missed payment.

• Technical Default: Breach of non-payment covenants, such as financial ratios, even if payments are up to date.

• Severe Default: Continued non-payment leading to advanced recovery actions.

Process of Loan Default and Recovery

Initial Default Detection:

• Automated Alerts: Triggered by the system when a payment is missed.

• Borrower Notification: The borrower is informed about the missed payment and given instructions to rectify the situation.

Grace Period and Early Intervention:

• Grace Period Activation: A predetermined period during which the borrower can make the overdue payment without severe penalties.

• Early Contact: Engaging with the borrower to understand the cause of the default and provide support.

Collection and Recovery Efforts:

• Negotiation: Discussing with the borrower to explore options for catching up on payments.

• Restructuring: Modifying the loan terms, such as extending the loan term or adjusting the interest rate, to facilitate repayment.

Escalation and Reporting:

• Reporting: Notifying investors and stakeholders about the default status and recovery efforts.

• Escalation: If the borrower fails to comply with the new terms, the issue is escalated for more stringent recovery actions.

Possible Outcome Scenarios

Initial Default:

• Scenario: The borrower misses a payment, triggering the default detection process.

• Outcome: Recovery efforts begin, with potential renegotiation of loan terms.

Catching Up on Loan Payment Schedule:

• Borrower Actions: The borrower makes the overdue payments during the grace period or after renegotiation.

• Outcome: The loan is brought back to good standing, and normal payment schedules resume.

Fully Repaid Loan After Collection and Recovery Process:

• Borrower Compliance: The borrower fully repays the loan following a structured repayment plan.

• Outcome: The loan is closed successfully, and the liquidity pool recovers the full loan amount along with any applicable interest.

Technical Default Despite Collection and Recovery Efforts:

• Scenario: The borrower meets payment obligations but breaches other loan covenants, such as maintaining certain financial ratios.

• Outcome: The loan may be restructured or additional covenants imposed to mitigate risk, but payment terms continue.

Ready for Liquidation Process:

• Scenario: After exhaustive collection and recovery efforts, the borrower fails to repay the loan or comply with revised terms.

• Outcome: The loan is classified for liquidation, preparing for collateral liquidation to recover the outstanding loan amount.