First-Loss Buffer

The first-loss buffer is capital that the borrower must post before it can draw from its facility. It stands ahead of lenders. If the borrower defaults, the buffer absorbs the loss first, and lenders bear only what remains. The protection is a legal right of the facility’s lenders. It is established by the facility’s agreements and does not depend on the discretion of the borrower, the Issuer, or the platform operator.

Design Principles

The Borrower's Own Capital

The buffer is posted in USDC, or another asset agreed in the facility terms. It is not a platform token, so its value does not depend on the platform’s own performance.

Owned by the Issuer

Title to the buffer passes to the Issuer outright. On default it is applied by set-off, without court action or a liquidation process.

Sized to Risk

Under the Credora Path, the required amount follows the borrower’s credit grade. A weaker grade requires more capital ahead of lenders.

A Legal Commitment to Lenders

The buffer is committed to the lenders of the facility by binding provisions across the agreements.

Provision	What it establishes	Source
Outright title transfer	The Issuer owns the buffer, for the account of the borrower’s segregated portfolio. The borrower keeps no proprietary interest in it. The agreement records that the Issuer has obtained a Cayman Islands legal opinion confirming that the arrangement is a valid title transfer and not a charge.	Title Transfer Collateral Agreement
Mandatory application	On an Event of Default, the Issuer must apply the buffer to lenders’ claims by set-off. The application is an obligation, not an option, and requires no court order.	Title Transfer Collateral Agreement
Lender entitlement	Each lender is entitled to its pro rata share of the buffer, as the first source of recovery after a default.	Note Subscription Agreement
Subordination of the borrower	The borrower’s claim to have the buffer returned ranks behind lenders’ claims and is extinguished to the extent the buffer is applied for them.	Title Transfer Collateral Agreement
Restricted use	The Issuer cannot apply the buffer to losses of its own, and the borrower cannot demand its release other than through the release mechanics described below.	Title Transfer Collateral Agreement
Bound signers	The individuals who control the first-loss wallet can sign only transactions that are consistent with the collateral agreement, and must withhold their signature from an improper instruction. Where an independent signer is appointed, that signer must confirm independently that an Event of Default has been properly declared before a set-off is signed.	First-Loss Signing Mandate
Statutory ring-fence	The buffer belongs to the borrower’s segregated portfolio. Under Cayman Islands law it is not available to meet the liabilities of any other portfolio.	Note Subscription Agreement

Ownership and Control

Under the Title Transfer Collateral Agreement (TTCA), the borrower transfers full legal and beneficial title to the buffer to the Issuer, acting for the borrower’s segregated portfolio. The transfer is outright. It is not a charge or a pledge over assets that the borrower continues to own. The buffer is held in the first-loss wallet, a multi-signature wallet of the Issuer that is identified in the facility terms. The Issuer holds it as owner, and the borrower keeps only a contractual claim to equivalent value. Transactions from the wallet require the co-signature of the individuals appointed under the First-Loss Signing Mandate. In return, the Issuer owes the borrower a contractual obligation to return equivalent value at the close of the facility, provided no Event of Default is continuing and nothing remains outstanding. That obligation ranks behind lenders’ claims. This subordination is what makes the buffer first-loss capital.

Sizing

The required amount is the Collateral Percentage multiplied by the drawn principal outstanding.

Under the Credora Path, the Collateral Percentage follows the borrower’s Credora Grade, from 10% at A+ to 25% at C. The mapping is set out in the Master Loan Agreement.
Under the Anchor Lender Path, the percentage is agreed between the borrower and its anchor lender.

No buffer is transferred when the agreements are signed. The borrower posts the buffer before it draws, and the amount posted sets how much it can draw: no draw is processed beyond what the buffer then held supports. This is the facility’s buffer-gated draw mechanism. The buffer is not posted again with every draw. Once posted it stays with the Issuer, and the borrower can repay and redraw against it. A top-up is needed only where a draw would take drawn principal beyond what the posted buffer supports, or where a regrade raises the required percentage. The capital that the borrower posts, or commits to post, at origination also limits the size of the facility. A facility cannot exceed the amount that this capital supports at the applicable percentage. Once the facility is established, the required amount tracks drawn principal only. It is not calculated on the undrawn portion of the facility, and the buffer held at any time should not be assumed to support the full facility size. These rules are obligations under the TTCA and the Master Loan Agreement, and the Issuer administers them. The buffer is held outside the vault contract, which plays no part in sizing it. For illustration, a borrower with a 10% Collateral Percentage that posts 1,000,000 USDC can support a facility of up to 10,000,000 USDC. With 5,000,000 USDC drawn, the required amount is 500,000 USDC.

Recalculation and Release

The required amount is recalculated when the borrower’s Credora grade changes and when the borrower reduces its facility. A repayment on its own does not reduce the required amount or release any buffer. The borrower may repay and redraw within the same facility without disturbing the posted buffer. A release follows only where the borrower notifies the Issuer, at or before the repayment, that the repayment reduces the facility rather than being redrawn against.

Event	What follows
A regrade raises the required amount	The borrower tops up within the cure period in the collateral agreement. A failure to top up is a breach and can be treated as a default under the Master Loan Agreement.
A regrade lowers the required amount, or the borrower notifies a facility reduction	The Issuer releases the excess within the release period in the collateral agreement, also 48 hours in the standard terms.
A full repayment notified as a facility reduction	The buffer is released in full.

When a facility is reduced, lenders are notified through the platform, and by email where they have opted in, that the facility available to them has been reduced and that a release of buffer to the borrower will follow.

Application on Default

On an Event of Default under the Master Loan Agreement, the Issuer is required to apply the buffer to lenders’ claims by set-off. The amount applied reduces what the Issuer would otherwise return to the borrower. Because the Issuer already owns the buffer, no court order, enforcement of security, or instruction to any third party holding the asset is required. The timing depends on the type of default:

Type of default	When the buffer is applied
Insolvency of the borrower	No cure period applies. The set-off can follow at once, subject to the enforcement process and signer confirmation.
Solvency Ratio in the Default state	After a seven-day operational cure window.
Repayment failure	After the period of approximately seven days in the Master Loan Agreement expires without cure.

The set-off is carried out by the Issuer, through the signers appointed under the Mandate. The proceeds are distributed to lenders pro rata under the Note Subscription Agreement, and any surplus after lenders’ claims have been met in full is returned to the borrower. For example, a buffer of 1,000,000 USDC covers a 600,000 USDC shortfall in full. Against a 1,400,000 USDC shortfall, it leaves 400,000 USDC to be recovered through the later stages of the recovery waterfall.

What the Buffer Does Not Cover

The buffer is applied only to losses arising from the borrower’s default. The Issuer cannot apply it to losses of its own, such as a loss on converting assets or a decline in the value of a yield-bearing instrument. The TTCA also gives the borrower a set-off right of its own if the SPC itself fails. The Issuer can hold the buffer in an approved yield-bearing instrument. The yield belongs to the Issuer as owner and is retained for its own account. It does not form part of the buffer, it is not held in reserve for lenders, and it does not cover any shortfall. Issuer-side losses of the kind described above are borne by the Issuer in the first instance, after recourse to any protection offered by the instrument’s issuer.

What Is Assured, and What Is Not

The agreements assure the buffer’s priority. On a borrower default it must be applied for lenders first, and the borrower’s own claim to it ranks behind theirs. The agreements do not assure its sufficiency. The buffer is sized as a percentage of drawn principal, so a loss can exceed it. The Note Subscription Agreement describes it as a partial buffer, and states that it is not a guarantee, an insurance product, or full collateralisation of the notes. A loss beyond the buffer is addressed by the later stages of the recovery waterfall. The value of the buffer also depends on the asset in which it is held. The TTCA acknowledges a risk that a court in some jurisdictions could re-characterise the title transfer as a security interest, and sets out the steps the Issuer takes to mitigate that risk.

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