Crowdestate explains: Transaction restrictions on the secondary market

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As of September 2019, we have selectively imposed temporary transaction restrictions on our secondary market to the investment opportunities, where the current economic situation differs significantly from the original business plan presented by the Sponsors, and as a result of that, we have a good reason to believe that the original contractual and/or estimated repayment schedule is not realistic anymore.

Among other things, Crowdestate uses the repayment schedules entered into our information system to calculate the expected return for the investments offered for sale on the secondary market. Investors, looking to acquire investments from the secondary market, tend to pay too much attention to the value of the estimated return. If the repayment schedule made available to us is incorrect or unrealistic, so is the value of the expected return (XIRR) calculated from that schedule.

Therefore, we believe that imposing temporary transaction limits on investment opportunities with an uncertain repayment schedule does protect the investors intending to acquire investments from the secondary market.

Baltic Forest OÜ investment opportunities are a good example. Lack of working capital was the key limited to the company’s growth and the fastest way to alleviate the shortage of working capital was to temporarily suspend the service of the company’s interest-bearing obligations and do that via official reorganisation procedure, thus protecting the integrity of the company’s assets.

Until the reorganization plan is compiled jointly by the reorganisation advisor, the management of the company and its creditors, and later,  the judicial approval of the plan, it is not clear what the loan repayment schedules (including those of Crowdestate’s investors) will look like and therefore we have suspended secondary market transactions with the investments into Baltic Forest OÜ until the judicial approval of the reorganization plan.

Another, clearly worse example is Q-Haus Baltic OÜ, where the bankruptcy proceedings have been initiated against the company, and although the claims of Crowdestate investors are secured by a 2nd lien mortgage on a production plant formerly owned by Q-Haus Baltic OÜ, we do not possess enough information today to realistically assess the total value and timing of potential repayments of loans granted by Crowdestate investors.

Transaction restrictions are intended to be temporary and we will lift them immediately once we have a clear understanding of the realistic repayment schedule.

2 comments

  1. Why not just remove the expected XIRR on the secondary market for the projects affected?

    I don’t think stopping transactions entirely is the best way to deal with it. Secondary markets are used to ensure liquidity for our investments at all times.

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