Junior

About the Junior vault

This vault is utilized to underwrite short-term loans (under two years) made to small and medium-sized enterprise (SME) lenders. The senior and junior loans extended to these SME lenders are fully secured by their performing loan portfolios. If the collateral falls short, the SME lender defaults. These loans usually feature a fixed interest rate and do not amortize over time. In case of a default by an SME lender, the shortfall is initially absorbed by their equity. If the value of the collateral—i.e., performing loans—dips below the sum of their liabilities, both junior and senior, a default event is triggered. This prompts the transfer of the SME lender's entire performing loan portfolio to independent agents for the purposes of asset recovery. For those participating in the Junior Lending Pool, their claims are subordinate to those of the senior debt holders in the event of any recoveries. However, the risk of losing the principal amount is partially offset. This is due to the average interest rate on the SME lenders' portfolios being higher than the interest charged on both junior and senior loans, and the average loan maturity being less than one year.