Default and workout
The question an allocator asks last and cares about most: the borrower misses a payment — then what, exactly, and when do I see cash?
This page gives the sequence. Where a step is contracted it says so; where it is intended but not yet arranged it says that instead, because the difference is the whole value of the page.
The timeline
| When | What happens | Who acts | Status |
|---|---|---|---|
| Day 0 | Scheduled payment not received. The settlement is simply never recorded — no receipt is written, so NAV does not move | The registry, by omission | Implemented. settlement_never_premature and the receipt design mean a missed payment cannot be booked as anything else |
| Day 1–5 | Grace and cure period; obligor notified | Issuer / security agent | Facility documents — terms not published here |
| Day 5–15 | Event of default declared; acceleration considered. Monitoring firm confirms the collateral pool's state | Security agent, monitor | Contracted; the monitor is appointed by the insurers and paid by the borrower |
| Day 15–30 | Claim notified to the insurer. The 90-day clock starts here, not at day 0 | Issuer | Policy — and see the caveat below |
| Day 15–45 | Enforcement over the collateral pool: metal realised, noteholder ranking senior | Security agent | Contracted |
| Day 30–60 | Realisation proceeds distributed through the waterfall — holders first, capped at par | Waterfall | Implemented and proved (frt_distribute_holders_first_par_capped) |
| Day ~105–135 | Insurance settles, if the policy responds and the claim is admitted | Insurer | See the gap below |
| Beyond | Residual recovery, disputes, cross-border enforcement | Courts / arbitration | Unmodelled and jurisdiction-dependent |
The liquidity hole, stated precisely
Between the missed payment and the insurance settlement there is a window of roughly three to four months in which the loss is real, the claim is pending, and no insurance cash has arrived.
Insurance improves recovery. It does nothing for liquidity in that window. During it, a redeeming holder is paid from the treasury buffer, the secondary pool, or realised metal — not from the policy.
This is the single most under-appreciated feature of the structure, and the
model is explicit that it does not solve it: the 90-day delay is carried as
a parameter and then proved to be read by nothing
(eval_arch_ignores_unmodeled_params). It is excluded, not mitigated.
Where the insurance is thinner than the timeline implies
The day-105 row assumes a policy that responds to the holder. On the documents as they stand, three things qualify that:
- the first-tranche policy names a different insured and a USD 10m insured amount, not the programme;
- policy rights cannot be assigned without the leading insurer's approval, and loss-payee status needs an approved endorsement;
- the deck's cut-through — direct recourse to the reinsurer — is therefore not established for a holder today.
Until an endorsement exists naming the intended beneficiary, model the insurance layer as a recovery to the named insured, not to you. See the first facility.
What realisation actually looks like for gold
Gold is the favourable case, and it is worth saying why: it is fungible, priced continuously, and sells into a deep market without needing a buyer for a specific asset. That is a genuine structural advantage over most private-credit collateral, where liquidation can be theoretical for want of a bid.
Three frictions remain, and none is modelled:
- Assay and form. Doré is not bullion. Realising it may require refining first, which takes time and costs money.
- Location and control. Realisation speed depends on where the metal sits and whether release instructions are actually controlled — the distinction risk and collateral treats as central.
- Haircut versus liquidation value. The advance is set below collateral value, but the model has no calibrated haircut field; the borrowing base's deductions are uncalibrated. Recovery experience would set them, and there is none.
What is proved about the default path
More than one might expect, but narrowly.
| Property | Theorem |
|---|---|
| Protection cannot pay more than was lost | stacked_protection_le_loss |
| The same loss cannot be recovered twice | no_double_recovery |
| A write-off requires the recovery to be resolved first | writeoff_requires_recovery_resolution |
| Default does not imply the claim is complete | default_does_not_imply_completion |
| Holders rank first at par in liquidation | frt_distribute_holders_first_par_capped |
| The distribution conserves the pool exactly | distribute_conserves |
What is not proved is timing. Every theorem above is about amounts and ordering. The clock — grace, notification, waiting period, realisation window — is outside the model entirely, and it is where the loss actually gets felt.
What would close the gap
A liquidity facility or a committed backstop sized to the waiting period; an endorsement establishing the holder's insurance rights; a published realisation policy with an expected window for gold; and a calibrated haircut set against observed liquidation experience rather than assumption. None of these exists today.