Senior and Junior losses

A USD 320,000 residual-loss example.

Assume a vault has USD 750,000 Senior capital and USD 250,000 Junior capital. It funds a USD 600,000 loan.

After an eligible realization process, USD 280,000 of that debt has been recovered. Assume no applicable insurance, fees, other loans, or value changes.

The residual shortfall is USD 320,000.

Junior absorbs the first USD 250,000 and is exhausted in this simplified example. Senior absorbs the remaining USD 70,000.

The calculation is USD 600,000 debt less USD 280,000 recovered equals USD 320,000 residual loss. USD 250,000 plus USD 70,000 accounts for that loss once.

A target Senior yield would not make the USD 70,000 loss disappear. If valid insurance protection applied and eligible reserve cash were available, that separate protection would have to be assessed before this investor-loss illustration.

TORQ markets start uninsured, so investors should never assume it exists.

Identify the positions that actually bore the loss.

A crystallized loss belongs to the positions economically exposed when it is recognized.

A current share balance is not always a complete entitlement record: a valid queued fixed claim may also bear a recognized haircut under the applicable accounting rules.

That is why the operating record must preserve the originating loan, vault and market partition, share class, active positions, queued claims, and any direct payments or escrow funding.

Moving cash between custody locations must not reduce the same vault obligation twice.

Label later payments.

Suppose another USD 90,000 arrives later. The number alone does not tell an investor what they receive.

Ordinary recovery cash credited to the originating vault follows its loss and priority accounting.

A separately approved purchase price paid by a distressed recovery fund would instead create an entitlement for the historical positions that bore the crystallized loss.

A fund acquisition is a distinct approved and funded transaction. It is not caused automatically by recognizing a loss, and the purchase price must not be counted as both current-holder NAV and historical-loss compensation.

Later proceeds from a recovery fund may belong to its own side-pocket investors under their terms.

These distinct paths are described in TORQ's recovery design. A reviewer must confirm which path is available in the live facility.

No recovery amount, timing, or legal enforcement outcome is guaranteed.

Ordinary loan recovery

First record to inspect: Originating vault and loan partition.

Entitlement question: How does this vault's loss and priority accounting apply?

Approved fund purchase price

First record to inspect: The exact settled acquisition and loss-bearer record.

Entitlement question: Which historical positions bore the crystallized loss?

Later fund realization

First record to inspect: The recovery fund's separate side-pocket ledger.

Entitlement question: Who holds claims on that fund under its terms?

What the capital provider should verify.

• The precise order for insurance, Junior, and Senior loss absorption in the applicable terms.
• Whether a queued redemption claim shares a recognized loss and how its fixed obligation changes.
• The identity of each cash source and the ledger that receives it.
• Who may authorize a sale or fund acquisition, and whether that path is actually released.
• The records that let an investor reconcile initial exposure, loss, later cash, and remaining claim.