Recovery rules at origination

Which recovery rules belong in the facility terms.

A useful recovery policy answers operational questions before the first draw. The exact legal terms and configured controls depend on the facility. Capital providers should be able to identify at least these decisions:

Intervention

Set before funding: Define impairment triggers, cure conditions and deadlines.

Why it matters: The borrower and manager know when ordinary activity changes.

Valuation

Set before funding: Name the price sources, methodology, freshness rule and any sale floor.

Why it matters: A stressed bid is measured against a known method.

Authority

Set before funding: Assign servicing, liquidation, sale and backup responsibilities.

Why it matters: A capital allocator can see who is allowed to act.

Sale route

Set before funding: Specify eligible buyers, evidence, funding and approval conditions.

Why it matters: A proposed transaction must meet known settlement rules.

Economic order

Set before funding: Define insurance eligibility, investor loss priority, expenses and proceeds.

Why it matters: The capital that bears a loss can be identified.

Record

Set before funding: State which events and beneficiary positions are preserved.

Why it matters: Later recovery can be reconciled to the right holders.

Why decide before a loan is distressed.

Once a borrower is under stress, changing valuation or sale rules can shift value among the borrower, manager, Senior and Junior capital, and queued exit claims. A rule agreed at origination gives each party a reference for evaluating a proposed action. It also limits how much discretion a manager can exercise after prices have moved.

A defined process does not create a buyer, make collateral liquid or guarantee repayment. It makes the decision path inspectable. The capital provider can compare a facility's actual permissions, evidence and loss order with its mandate before accepting that exposure.

Attribute recovery outcomes.

In TORQ's documented V2 model, each loan remains tied to the vault and market partition that funded it. A permitted liquidation may repay part of an unhealthy borrower position. If debt remains, loss recognition records the residual shortfall in that originating partition. It does not automatically sell the claim to a recovery fund.

When eligible insurance cash is available, it applies before investor loss. In a vault with tranches, remaining loss reaches Junior before Senior, and Senior can still incur loss. Insurance is optional per market and available cover depends on the market's actual state and reserve cash.

Ordinary recovery cash paid to the originating vault first offsets its recognized loss. A separate, approved and funded distressed-asset acquisition can compensate the investors who bore a crystallized loss. Later proceeds from that recovery fund belong to its own side-pocket participants. These are different rights and must be reviewed separately.

Managed Resolution design.

The specified Managed Resolution design binds a facility's valuation methodology, recovery adapter, manager and backup manager at origination. If the facility enters Resolution, the lender claim is frozen under the specified accounting rules. The active manager may pursue a bounded workout, a funded Full Sale or a controlled recovery route, subject to the applicable policy and evidence.

For a funded Full Sale below the fixed valuation-methodology floor, the design lets affected capital holders veto that exact transaction. Active shares and queued redemption claims count toward the affected exposure. The manager proposes and funds the sale. Investors gain a bounded protection against that proposal, not control of servicing or a promise of a higher price.

Managed Resolution is a separate source candidate. It is not activated in TORQ's published deployment, and its specified controls must not be treated as a live right in any particular facility. Verify the release status, facility configuration and governing documents before relying on them.

What would a governed sale decision look like.

Consider an illustrative facility whose original terms identify a valuation method, an authorized manager and the capital affected by a sale. A borrower becomes impaired. The manager obtains a funded bid, records the evidence and checks the price against the bound method. A below-floor Full Sale enters the specified holder-veto process before it can settle.

If a material bid term, policy version or valuation context changes, the old decision cannot authorize the revised sale under the design. If the transaction validly settles, approved expenses and net proceeds follow the bound allocation rules. Any remaining loss reaches the originating capital under its waterfall. This sequence describes the design, not a currently available sale workflow.

Review before allocating.

Ask for the actual facility terms and the current product status. A general description of recovery is useful context, but it cannot replace the rules that apply to the capital you would provide.

• Which vault and borrower position will the capital fund, and which party services the loan?
• What triggers cure, liquidation, loss recognition or another recovery action?
• Which valuation source and method apply, when can they be refreshed, and what happens when data is stale?
• Who can propose, approve, veto and settle a sale, and are those rights live for this facility?
• How are expenses, optional insurance, Junior and Senior losses, and later cash allocated?
• What happens to queued redemption claims and historical loss bearers?
• Which evidence and indexed records will confirm the outcome after settlement?