Tugende, a Uganda-based venture-backed lender, and Warbler Labs, a company that is building Goldfinch, a decentralised credit protocol, have reached an agreement on a plan to restructure a loan, which may lead to the recovery of the $5 million loan that the East African motorcycle taxi financing company defaulted on several months ago. Tugende is based in Uganda, and Warbler Labs is based in the United States.
According to an investor update, Warbler Labs has reached a “agreement in principle” with Tugende and its backers, which includes a strategic investor, regarding the restructuring of the company. An “agreement in principle” is an arrangement that establishes the groundwork for a contract.
The details of the deal were not disclosed to the general public. Michael Wilkerson, co-founder and CEO of Tugende, declined to provide specifics regarding the reorganisation plan but promised more information would be provided in the upcoming weeks. “There is a larger transaction and a strategic investor coming together,” he said.
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When Tugende made their decision
Following Tugende’s default on the $5 million in October 2021 that it had borrowed from Goldfinch protocol for its Kenya activities, the company has decided to restructure the company. Up until May of this year, Tugende was current on the payment of the monthly interest of $53,400. This was five months before the principal amount became due. It went into default in June, which caused widespread anxiety among the Goldfinch community.
Goldfinch is a decentralised lending protocol powered by a16z that enables companies in emerging regions to acquire crypto loans without the initial requirement of possessing any crypto assets. This is in contrast to the majority of DeFi platforms, which demand borrowers to stake crypto assets with a value that is greater than the amount of the loan they wish to obtain.
The objective of the Goldfinch protocol is to make it simpler for organisations located outside of the United States, like Tugende, to gain access to cash based on off-chain collateral. As an illustration, Tugende pledged all of his possessions, including his bank accounts, as collateral.
The business based in the Bay Area has created capital pools, one of which is called “senior,” which invests in diverse portfolios. This makes it possible for companies like Tugende to receive money from investors who are involved in the protocol.
Goldfinch has had its first significant setback since its start as a result of Tugende’s default on its loan. However, lending to firms, particularly those that conventional financial institutions are not very enthusiastic about, has dangers.
Tugende’s efforts so far
According to the most recent investor update, Warbler Labs has signed a term sheet with Tugende, agreeing in principle to a comprehensive restructuring plan. This plan has the potential to result in a material recovery for the Goldfinch Senior Pool. This represents a shift in tone from the previous post, which suggested that a restructuring could result in losses, possibly extending to the entire amount of the loan.
“If the restructuring successfully closes at the indicated terms, the potential net write-down of the senior pool’s NAV [net asset value] due to the Tugende default may be reduced from approximately 3.95% to less than 0.79%,” Warbler Labs said.
In the report that was provided in July, it was stated that it was expected that the NAV of its senior pool would suffer a write-down of 3.95% during the course of the four months leading up to October.
Warbler Labs believes that the reorganisation and the first payment will take place before the end of the year. The company was quick to note, however, that it will be depending on the existing facts and circumstances, which will include the completion of any necessary legal work and regulatory permissions. However, it’s possible that it will be delayed because of unanticipated complications that might come up.
“This is the first loan restructuring of this kind on the Goldfinch platform. Warbler Labs and Goldfinch will keep the community and investors apprised of the recovery efforts and remain committed to transparency and accountability,” Warbler Labs assured.