During Debitum's due diligence process, every partner on the platform is asked to provide additional security for our investors or agree on specific covenants. If these covenants are breached, the partnership agreement may be terminated.
Currently, there are six main types of securities and covenants used on our platform:
Buyback obligation: Every partner on the platform is stress-tested by Debitum's risk team to estimate their ability to cover obligations if default rates suddenly rise. Based on this, a maximum investment limit is set for each partner on the platform, aligned with their capacity to execute the buyback obligation. This obligation is part of the partnership agreement.
Advanced buyback obligation: Some partners agree to stricter terms beyond the standard buyback, such as earlier buyback triggers, minimum Loan-to-Value (LTV) ratios, or third-party guarantees. This is often used with partners who have a shorter track record.
Ratios: Debitum's risk team sets specific financial or operational performance limits that the partner must maintain. Common ratio covenants include debt-to-equity, defaulted loans ratio, and equity-to-portfolio ratio.
Reserve fund: Some partners establish a reserve fund with periodic deposits to cover unexpected future defaults or financial obligations. The size of the fund is often linked to the volume of the partner's investments on the platform.
Pledge: A portion of the partner's loan portfolio is used as collateral specifically for investments made via the Debitum platform. This pledged portfolio remains on the partner's books but cannot be pledged or sold to anyone else. Income from this pledged portfolio can be used to cover potential losses for Debitum investors.
Surety: A person or company (often managers or holding companies) accepts legal responsibility for the partner's debt or behavior.