Portfolio performance review (June 2022)

June has been an especially busy month for farmers. Silaging and haymaking continued, as well as taking care of livestock and getting other essential tasks done.

Investors followed with financing exciting agricultural projects and over June invested 1,8M EUR into agricultural loans on HeavyFinance. The capital was spread around 65 loans.

In total, 23.5M EUR were issued to the farmers till the end of June 2022. To date, 5.2M EUR principal is already repaid to investors with 1.49M EUR in interest.

The overdue principal of more than 90 days is 1.46M EUR. It is an 8% decrease since the end of May.

Currently 81% of loans are being paid on time or are already repaid and only 6.2% are overdue more than 90 days.

It is worth mentioning that ratings B+ and C+ were introduced at the beginning of 2022, therefore, there are no defaults in this rating category.

The graph below shows the loan originations, principal repayments and interest payments for each quarter. Let’s take Q3 2020 as an example. Over this period, 451 thousand EUR of loans were funded, of which 421 thousand EUR have already been repaid together with 49 thousand EUR of interest. 16 thousand EUR is being repaid according to the payment schedule and 14 thousand EUR is currently more than 90 days overdue. (If at least 1 instalment is overdue, we treat the whole principal amount as being late).

Bulgaria

During the whole period (since April 2021), 1.7M EUR of loans were issued in Bulgaria and 87% of these are being paid on time or have been repaid already earning investors 93K EUR of interest. Only 31K EUR is overdue more than 90 days.

The Operations Department pays close attention to late payments. At the beginning of June, there were 3 loans with payments overdue by more than 60 days. Late loan recovery actions were taken:

  • Each week, the operations department spoke with clients on the phone to understand the reasons and try to find solutions.
  • Official notification letters for payment reminders were sent 30 days after the due date of the instalment.
  • A notary letter has been sent 45 days after the due date informing about the termination of the contracts. In case the customer refused to accept the letter, the bailiff services were used.

As a result, one farmer decided to refinance his loan and paid all the late commitments. On the same note, another farmer covered all the late commitments after receiving the letter from the bailiff.

The remaining one farmer has not been responding and is still late, so a legal procedure to recover the loan was initiated.

Latvia

During the whole period (since June 2021) 1.1M EUR of loans were issued in Latvia. 90% of loans issued are being paid on time or have been repaid already with 52K EUR of interest. There are no loans overdue more than 90 days.

There was only one case in late 2021 where one farmer was more than 90 days late, but the HeavyFinance team managed to find a solution – the farmer sold one of his combine harvesters and covered the debt.

Lithuania

During the whole period (since June 2020), 18M EUR of loans were issued in Lithuania, 84% of loans issued are being paid on time or have been repaid already with 1.26M EUR of interest. 1.32M EUR is overdue for more than 90 days.

In the beginning of June, there were 14 loans more than 90 days overdue and 14 loans more than 60 days overdue.

Analysing the main reasons for the delays, our internal recovery team spotted that the wast majority of farmers being late on their commitments were grain growers. They bought the fertilizer and fuel for a higher price than anticipated and now are waiting for investments to pay off with a threefold increase in grain prices.

However, as grain growers get most of their income in Autumn, they are communicating actively with HeavyFinance and constantly reporting to us about their progress and expected time to make instalments.

Action has been taken to recover overdue loans:

  • From the very first days of delay, the Operations Department spoke to customers on the phone to find out the reasons and try to find a solution.
  • Official notification letters with payment reminders were sent 30 days after the due date of the instalment.
  • 45 days after the due date warning letters were sent informing farmers that the contract will be terminated if they will not make a plan instalment with the delay fees. Customers who did not respond to the last letters had their credit agreements terminated and debt recovery initiated, both by applying for a notarial deed of execution and to a court for the recovery of the debt and the issuing of an enforcement order.

During June, 8 writs of execution were received and handed over for recovery, 4 contracts were referred to court, and the rest of the 14 proceedings are with bailiffs and are currently in the process of being executed: notices to debtors are sent, orders to appoint an expert have been issued and assets are being appraised.

Three debtors who were more than 60 days in arrears have had their loans restructured, their regular instalments paid and other actions to settle their arrears in instalments are being coordinated.

The debtors for whom the bailiff has started a forced debt recovery have requested HeavyFinance to postpone debt recovery until mid-July. The most problematic client is UAB Geri grūdai, whose manager does not provide information to the bailiff, and whose communication is difficult, making it complicated for the bailiff to inspect the property and determine the value. However, the property has now been found and is being evaluated.

Poland

During the whole period (since December 2021) 1.5M EUR of loans got issued in Poland. 68% of loans issued are being paid on time or have been repaid already with 39K EUR interest. 61K EUR is overdue for more than 90 days.

Owners of projects PL0000501 and PL0000521 started struggling to make planned instalments. Total principal overdue more than 90 days is 60.550 EUR.

The owner of the project PL0000501 made a partial payment of 738 EUR and has been promising to pay the remaining amount as soon as the payment from the client is received. As no further payment has been made, we terminated the contract and decided to enter into the legal procedure. Documents have been passed over to the law company and soon will be submitted to the court. No red flags have been raised so far, therefore, HeavyFinance recovery team expects a court ruling in our favour.

PL0000521 entered into a restructuring process before contract termination. We have received information from the restructuring advisor that this farm is operating and generating income, but needs to be restructured in order to become a healthy business with the ability to fully cover all instalments. As the business is currently under legal protection, HeavyFinance is waiting for the advisor’s proposal and if all parties (including other lenders) agree on a new payment schedule – it will be presented and confirmed in the court.

Portugal

During the whole period (Since March 2021) 1M EUR of loans got issued in Portugal. 77% of loans issued are being paid on time or have been repaid already with 40K EUR interest. 36K EUR is overdue for more than 90 days.

The Portuguese Operations Department is constantly on top of late payments via any viable channel, be it phone, email, SMS or WhatsApp. They work proactively and preventively by contacting project owners before the loan’s first instalment is due, and before payment dates when there are expecting reasons for the delay or there is a habit of delay.

Once any loan presents late payments, our team contacts the project owners to understand the reasons why the instalment(s) is (or are) late and get a commitment date for the payment of these late amounts.

These efforts resulted in the prevention of several loans to reach the 30 days late mark.

Notably, they also resulted in the deal to pay the late instalments of PT0000311, that the project owner is following as agreed, and the restructuring of the loan PT0000119 with a pledge reinforcement before it reached the 30 days late mark. Additionally, PT0000488 decided to sell the pledge they have with us, and has the notary booked for 18th July to liquidate their loan in full with all late interest and fees.

Nine other loans remain above the 15 days late mark. The loans PT0000448 and PT0000540 have a commitment to pay after receiving a letter with a strict deadline for payment. The same happened with PT0000209 after the project owner sent us the proof of being down sick for over 3 months.

We are still talking with the project owners of loans PT0000457, PT0000512 and PT0000581, which failed with payment deadlines, and in the meanwhile preparing to send termination letters and start court procedures.

To finalise, until the end of June 2022, we terminated 3 loan contracts due to lack of payment, PT0000310, PT0000449 and PT0000469, that are in the process of entering court.

Even though the economic and geopolitical situation is challenging at the moment with increased costs for farmers – the majority of them expect solid revenue from the harvest in Autumn as well as EU support early next year.

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