After transactions close and are funded, Percent pays close attention to the performance of originators on the platform to stay informed from a due diligence perspective. Percent also monitors the underlying collateral that makes up an offering. The following sections contain details on the typical surveillance process that Percent performs on the outstanding transactions and the originators of the underlying collateral.
On an ongoing basis, Percent monitors the performance of the underlying collateral backing the notes on our platform. We do this to measure how the actual performance of the collateral aligns with the assumptions formed in the new originator onboarding process. This performance is summarized in the format of Surveillance Reports produced by Percent’s internal risk team, and are based on originator-provided portfolio data files. Depending on how frequently originators provide these data files, the reports are typically produced and published on a daily or weekly basis or, in some cases, monthly.
Surveillance Reports can vary in certain content based on asset class nuances and by how much information the originator is able to provide. Below are important items in Surveillance Reports, agnostic to asset class nuances and not originator-specific, that Percent takes into consideration throughout the life of a transaction:
- Deal Summary: The top of the surveillance report contains a summary of the transaction with key information including the transaction’s annual percentage yield (APY), investment term, total number of assets, note size, and collateral balance.
- Days Past Due Analysis: As delinquencies precede defaulted balances that decrease the total amount of money available to pay off notes, Percent monitors the amount of underlying collateral that is delinquent. The analysis focuses on what percentage of the outstanding collateral balance is delinquent, typically broken out in the categories of current (<= 1 day past due), 2-30 days past due, 31-60 days past due, 61-90 days past due, 91-100 days past due and 121+ days past due. Seeing how those balances may change over time is important as it is an early indicator of decaying credit performance. When the data is available, reports may further breakout delinquencies by categories such as state or obligor industry.
- Portfolio Concentration Analysis: Percent typically stratifies the underlying collateral into various categories by outstanding balance to observe how the pool changes over time. Collateral pools can be stratified by various categories depending on the data provided, such as state, industry, credit scores, time in business, loan-to-value ratio, receivable seller, and modality.
Percent additionally monitors the credit performance in some transactions on the platform with a tool referred to as the Asset Test Ratio. The Asset Test Ratio is a measurement of overcollateralization that tracks the amount of cash and receivables available to pay off a note’s principal and interest balances. The calculated overcollateralization (OC) amount is confined within a minimum OC and excess OC level. When the OC amount is below the minimum OC level, cash flow from the collateral cannot be reinvested into new collateral. When the OC amount is above the excess OC level, excess cash flow can be leaked to the originator as long as the OC level remains at or above the excess OC level after the cash leak.
Ongoing Originator Due Diligence
On a quarterly basis, Percent requires each originator to provide updated due diligence information in the form of a questionnaire. This information includes, but is not limited to, company financial statements, updated portfolio data files, notifications of any new third party agreements, trailing twelve months defaults and net losses, and material changes within the organization (such as key management changes, updated product offerings, changes to credit scoring and underwriting, acquisitions, divestitures, joint ventures, lawsuits, regulatory changes with material business impact, and more).
Prior to beginning the quarterly review process, Percent confirms internally that the questionnaire includes the appropriate questions. Periodically, Percent will append questions that relate to current economic events and will require insights from all originators. Percent reviews and internally documents any pending questions and/or issues as well as compares results to the prior quarter to identify any large deviations. Percent reviews any open questions and/or issues with all originators. The quarterly due diligence questionnaires provide Percent with important originator information that may influence the credit performance of the underlying collateral. Any significant updates are typically disclosed in a surveillance report and/or the PPM and deal page of a roll-over issuance.
Furthermore, on an annual basis Percent updates certain internal scorecards with refreshed financials and any other relevant information. Depending on the change in certain internal scores, Percent’s internal committee may have to reevaluate and approve, modify, or deny the transaction as well as reevaluate any automatic approval thresholds for future transactions.