One of the things we pride ourselves on is the efficacy of our recovery process, which is borne out by the figures. From more than €20M of recovered defaulted loans, the average return of fully recovered loans stands at 9.16% and the average term from default to fully recovered status has been 10.6 months. (N.B. These numbers are dynamic and subject to change as we recover more loans. They are accurate at the time of publication. For completely up-to-date numbers, please check the statistics page).
As we get many questions about defaulted loans, we’d like to share some information about the nature and extent of the work we do in this regard. Hopefully, this will give you some peace of mind, should you have other defaults in your portfolio currently or in the future, and help you to trust that we have the team, the plan, and the strategy in place to protect all your investments.
Today we’ll be discussing the following, recovered loans:
#4534 Business loan (Estonia)- Funded – 10.06.2021
#4534 Business loan – 2.stage (Estonia) – Funded – 10.06.2021
The journey from funded to defaulted to recovered
Funding date: 10.06.2021
Default date: 06.05.2022
Partially recovered date: 12.08.2022
The challenges faced
The total amount of the initially funded loans was €1 719 500, to release equity for the borrower’s main business, which was exporting and trading timber to North Africa and the Middle east.
In the first part of 2022, the war in Ukraine brought significant setbacks to their core business and the cash flows of the group’s companies. The borrower became late with payments and despite lengthy negotiations, our debt management team and the borrower were unable to execute the workout plan. Consequently, the loan contracts were terminated, and the loans defaulted in May 2022.
The borrower remained cooperative and proposed the sale of the property through a reputable real estate broker. After a few months the broker provided us a list of potential buyers and proposed to stop the enforcement process, to allow the time needed for negotiations. To provide further motivation, Estateguru’s risk department team asked the borrower to make a partial principal repayment. In August 2022, after some negotiations, the borrower paid €35000 euros with the agreement to sell the property latest by October 2022. The payment loan status was changed to partially recovered, as part of the principal was returned to the investors.
As the situation in the Estonian real estate market became more pessimistic and as the borrower had high price expectations, the sales negotiations failed and Estateguru continued with the enforcement process and auction.
Meanwhile, Estateguru’s CRO took control of the sale process and negotiations. We contacted all the potential buyers and asked the broker to provide us with new potential buyers. The borrower remained cooperative and didn’t hinder the process.
By February 2022, after long and hard negotiations, Estateguru was able to secure several offers.
To ensure a successful transaction, Estateguru’s CRO had to lead and prepare the sales transaction process in the notary. As opposed to a bailiff auction, a free sale transaction has to consider all the parties and creditors and ensure that all the parties agreed to the sale transaction. This meant long negotiations with other creditors to ensure a successful sales transaction, which took place on 20.02.2022.
Going above and beyond
Our CRO took control of the sales process of the property, held negotiations with potential buyers to sell the property and prepared the complicated sale transaction to ensure the fastest and highest recovery for our investors. This is not typical market practice for other finance companies, as usually lenders do not take such an active role in the sales process of a defaulted loan.
Ultimately, our actions resulted in no capital losses on recovery and achieved the highest possible sales prices in a very unfavourable economic environment.
Our work will continue
The Estateguru team works extremely hard to actively manage all of the defaults and recoveries in our loan portfolio through to a resolution that satisfies our investors. Our aim is to avoid capital losses at all costs, even when this requires the kind of extensive involvement that many other lenders would shy away from. Rather than write off losses, which would be the easy and simple way out, we remain committed to doing everything it takes to recover, at a minimum, the full principle for our investors.
We are confident that more recoveries are coming in the near future, and we approach every default with the same dedication, no matter the size of the loan or the obstacles faced during the process. We hope this blog has proved useful in providing an insight into the work we do at Estateguru.
