2023 at Percent: Resilience to Revolution in Private Credit

By

Percent

• January 19, 2024

Reflections from a defining year

2023 was a year etched in resilience and growth for Percent.

While the echoes of a “ mini banking crisis ” rippled through the world, casting shadows of uncertainty, Percent stood out as a stable platform in the private credit landscape, establishing ourselves as a formidable player with a growing influence on the industry’s evolution.

The year was not without its challenges. The crisis in March served as a stark reminder of the financial system’s fragility, yet it reignited the need for the very solutions Percent provides. As traditional lending channels froze, Percent stood resilient, offering stability and flexibility to a market in need. In the face of market instability, assets under management on our platform flourished, crossing $104.4M in Q2 2023. Buoyed by this momentum, we raised $30M in a Series B round , injecting further fuel into our mission.

In 2022 we welcomed the first third-party underwriter to Percent, making strides on our mission to build a three-way marketplace that empowers all—underwriters, borrowers, and investors—to navigate the historically opaque world of private credit. Leveraging our four years of in-house experience, our marketplace took major strides in 2023. The milestones we achieved last year unleashed a torrent of activity, leading to:

• Explosive Expansion: Volume ($240M), deals (161), new borrowers (40), and assets under management ($147M) surged beyond our expectations.
• Diversification at Scale: New offerings flooded the platform, spanning across asset classes, borrowers, geographies, and sectors, offering investors a richer and more personalized menu of opportunities.
• Deeper Access: From asset-based securities and corporate notes to limited partnership interests and blended notes , our platform caters to increasingly diverse risk-return approaches and portfolio strategies.

We achieved a significant milestone in August, as we became a registered broker-dealer .

The year culminated in a flurry of activity with a record-breaking 17 inaugural offerings launched in the fourth quarter alone, driving total outstanding investments to $147.7M—a 35% annual increase.

As we step into 2024, we are imbued with a renewed sense of purpose and excitement. The path ahead will see us continue to refine our platform, forge strategic partnerships, and champion investor education. We will push the boundaries of transparency and innovation, while our commitment remains steadfast.

Thank you for joining us on this extraordinary journey. Together, we are defining the future of private credit, building a market that is not only accessible, but also equitable, efficient, and empowering for all.

With gratitude,

Nelson Chu, Founder & CEO

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$240.9M

Total Invested in 2024

161

Funded Deals

40

New Borrowers

$201.2M

Principal Returned

23,787

Total Number of Investments

$1.5M

Average Deal Size

$17.2M

Interest Paid

Note: Percent’s marketplace has been facilitating investments in private credit since 2018. In 2023, Percent Securities became a registered Broker-Dealer to further streamline and enhance investor access to private credit. This page provides transparent data on the performance of the Percent Marketplace, showcasing deals facilitated prior to and following our Broker-Dealer registration.

Year-Over-Year Statistics

Assets Under Management

Investor Performance

Marketplace Metrics

_ Individual return performance on the investor portfolio page is calculated differently and uses the XIRR formula._ More information here.

Beyond Volume: Decoding Percent's 2023 Performance

It was a dynamic year on the Percent platform, marked by a substantial issuance count and an evolving deal structure landscape. While last year saw over $240 million issued across 161 private credit transactions on Percent, issuance volume dipped slightly compared to previous years. This may seem counterintuitive with the higher deal count, but there’s a compelling story behind it.

Rollover Reduction: The key lies in reduced rollover activity. Deals issued on Percent historically underwent frequent refinancing. In 2023, however, a shift emerged as the average deal term from 9.7 months to 14.1 months. With longer interest-only periods and extended underlying terms, these deals stayed put. Additionally, the growing presence of corporate loans, typically only refinanced near or at maturity due to bullet amortization structures, further contributed to the volume moderation.

The Marketplace Takes Flight: 2023 truly witnessed Percent’s transformation into a vibrant three-sided marketplace. With the onboarding of 11 new underwriters in the past year, investors gained access to an unprecedented diversity of offerings and structures. These underwriters, who sourced and structured the majority of incremental capital raised in 2023, brought unique experience and deal flows to the platform. Our new underwriters include:

• Aluna Partners ($13.6M across 13 deals): A boutique advisory firm based in London, Aluna Partners, established in 2021, specializes in early-stage technology companies globally. They have a diverse portfolio, including fintech, healthcare, logistics, media, and SaaS industries.
• Celeres ($1.5M across 1 deal): Celeres Capital Advisors, founded in 2019 and headquartered in Puerto Rico, is a minority-owned registered investment advisor. They focus on providing growth capital to companies in overlooked markets, often led by diverse entrepreneurs.
• Era Global Technologies ($2.5M across 1 deal): This New York-based global investment partnership, a rebrand of 8090 Partners LLC, comprises over 30 multi-billion dollar family enterprises across 19 countries. Era Global invests across 25 industries, building on a diverse and extensive network.
• Hi2 ($700k across 1 deal): Hi2 Investment Management LLC is a registered investment advisor, managing an Alternative Credit Fund. This fund focuses on private credit investments in global consumer credit and car dealer inventory sectors.
• H Street DCL ($3.2M across 1 deal): Established in 2023, H Street DCL specializes in the affordable housing sector in Washington, D.C. The team, with nearly 15 years of experience, focuses on small business lending and fintech software, collaborating on property development and redevelopment.
• Hum Capital ($13.4M across 10 deals): A New York-based funding platform, Hum Capital, founded in 2019, provides non-dilutive capital for growth-focused lower middle-market companies, enhancing private capital markets functions.
• New Technology Ventures ($400k across 1 deal): This U.S.-based venture capital firm is actively involved in developing and investing in innovative ventures. Their focus areas include cybersecurity, software, and healthcare IT.
• Pi Capital( $2M across 4 deals): A global advisory firm, Pi Capital leverages its extensive network and sector expertise to propel its clients towards achieving their strategic goals.
• Quiq Capital ($9.6M across 9 deals): Based in New Jersey and founded in 2018, Quiq Capital is a private credit fund manager. They specialize in direct lending and structured credit for the lower middle market.
• Sharestates ($1.3M across 7 deals): Sharestates, operating since 2013, is a New York-based private lender catering to a wide range of real estate projects. They connect developers with investors for bridge, fix and flip, new construction, and long-term rental loans.
• Tradebacked ($3.6M across 7 deals): Established in 2022, Tradebacked offers specialized inventory financing through buyback and sale-leaseback contracts. They operate in the U.S. and occasionally support U.S.-based subsidiaries of international companies in various regions, including Asia, Europe, and the MENA region.

By championing underwriters, we enabled investors to access unique opportunities structured by experts across sectors. This drove diversification while retaining our rigorous practices of diligence and transparency.

Building on Bedrock: Advancing Our Marketplace

In 2023, Percent dedicated significant effort to enhance and refine our platform, ensuring an elevated experience for all users. Our focus has been on delivering a new level of efficiency, standardization, and transparency to evolve the private credit marketplace.

Streamlining Workflows for Underwriters & Borrowers

For our underwriters and borrowers, we introduced several innovative tools and features designed to improve their experience:

• Enhanced Data Room Tools: Streamlined deal organization and file sharing.
• Expanding Deal Structuring: Greater flexibility to tailor offerings to borrower and investor needs.
• Granular User Roles and Invitations: Precise control over platform access and permissions.
• Improved Surveillance and Reporting: Streamlined workflows for borrowers to share performance data with underwriters for ongoing surveillance.

These upgrades empower underwriters and borrowers to operate with newfound workflow efficiency, standardization, and transparency, elevating the entire market experience.

Innovations for Investors

We understand your time is valuable, so we made it easier than ever to discover and analyze high-yielding opportunities.

New Investor Portal: Your upgraded investment hub, featuring:

• Underwriter Profiles: Get to know the teams behind the deals.

• Advanced Diligence Tools: Enhance your investment decision-making through upgraded data rooms and embedded comparables for easier and more informed analysis.

• Order Book Transparency: Access insights into investor demand and minimum rate requirements to optimize your orders.

• Simplified IRA Setup: It’s easier than ever to connect your retirement accounts and start investing.

• Percent Markets: Dive into data-driven insights, including market trends, historical issuance, rate trajectories, and view upcoming payment schedules at a glance.

Ultimately, we continue raising the bar to champion the entire private credit ecosystem. Our platform innovations transform complex, opaque processes into seamless and illuminating experiences. In 2024, we’ll build on this momentum, introducing even more features to empower your investment success.

Illuminating Reality: Navigating 2023 Workouts

We recognize that investing in private credit involves inherent risks. At Percent, we arm investors with tools—flexible deal discovery, embedded analytics, and transparent documentation—to assess risk-return fit. However, economic winds and performance remain beyond prediction. 2023 brought workout situations that prove why vigilance and collective wisdom serve markets.

In 2023, one transaction charging off resulted in approximately $850,000 of losses, compared to $3.73 million in 2022. As of the 2023 year-end, two deals face workouts. One other deal experienced a default and recovery in full during 2023.

We outline statuses below not to alarm, but to enlighten. Knowledge drives sound decisions, even amid uncertainty.

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, and missed payments followed.

Our 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: $1,619,308
• Remaining Principal: $2,044,931

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.

Our 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: $540,809
• Remaining Principal: $1,001,853

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, and ongoing collections continue, enabling ongoing distributions.

Indigoblue: Canadian Mortgage Lender

Background: Amortization of this note occurred at a slightly slower pace than expected as rising interest rates made it more difficult for some underlying portfolio obligors to refinance loans. Loans remained collateralized and eventual repayment in full was never in significant doubt.

Our Response: Percent communicated to investors in advance that a minor portion of the note balance was likely to remain outstanding past its maturity date. Percent and Indigoblue remained in frequent communication.

• Principal at Start of Default: $989,718.30
• Recovered So Far: $989,718.30
• Remaining Principal: $0

Current Status: The defaulted balance on the note was fully repaid over June, July, and August 2023. The final payment was distributed on August 17, 2023, with 100% recovery including post-maturity accrued interest.

Pulse Medical Finance: Purchase Order Financing

Background: In January 2022, the expected cash flows from the underlying assets supporting the offering failed to materialize, and the note subsequently entered workout status. The demand for nitrile gloves declined as buyers secured their necessary supply due to the easing of COVID-19 and increased availability of alternative suppliers. Pulse was unable to sell the nitrile gloves at a price that would allow them to fully repay the principal and accrued interest on the note.

Our Response: Percent took control of the collections account in November 2021, as a result of missed interest payments. Percent worked with Pulse to help source alternative financing and find buyers for the nitrile gloves.

• Principal at Start of Default: $2,152,026
• Recovered So Far: $173,500
• Remaining Principal: $0

Current Status: Percent was able to find buyers interested in buying the assets at a steep discount but ultimately the best price was what Pulse’s own investors were willing to offer to buy the gloves. As a result, after recovering $173,500, the rest of the principal balance was charged off. No additional recovery is expected.

While workouts prove challenging, our commitment to transparency, client partnerships, and vigilance persists. For the aforementioned deals, this was the approach that Percent, as the underwriter in these specific deals, decided to pursue. In 2023, no transactions from third-party underwriters faced workout status. All underwriters on Percent are committed to full transparency and, in the event of any underperformance of a note, take proactive measures to mitigate these risks, and safeguard our investors’ interests.

Navigating the Winds of 2024 with Confidence

As we turn the page on a monumental year, 2024 dawns ripe with potential–though not without risks. Much relies on the trajectory of two key forces: Federal Reserve policy and economic growth.

Fortunately, we foresee auspicious developments on both fronts. Market sentiment revived in late 2023, signaling brighter days ahead. However, optimism untouched by prudence makes markets vulnerable. Progress rarely follows a straight line.

Favorable Tailwinds: While acknowledging potential vulnerabilities in overly positive market sentiment, we remain confident in the underlying strength of the private credit market.

Discipline & Defense: Recognizing the possibility of increased defaults in a potentially weaker economy, our 2024 Private Credit Outlook emphasizes the importance of disciplined underwriting and a focus on secured offerings. Asset-based financing, historically less prone to defaults, is likely to see growing demand.

Empowering Your Success: Private credit shines as a portfolio stabilizer, delivering uncorrelated returns and complementing other assets. Our continually enhanced platform provides the tools and data you need to make informed investment decisions. Comparing offerings transparently, selecting strategically, and utilizing our robust data insights will be key to maximizing returns and mitigating potential losses.

Ultimately, unpredictability itself is predictable. At Percent, we champion education, vigilance, and collective wisdom to illuminate the way forward, even in foggy conditions. Our platform continues evolving to empower investors with agency through turbulence. A diverse array of private credit opportunities, coupled with unwavering transparency and investor support, positions Percent as a trusted partner in navigating the winds of 2024. We look forward to collaborating with you to achieve your investment goals and propel your portfolio forward.