Orthogonal Trading issues a notice of default to Babel Finance
Today, Orthogonal Trading issued a notice of default to Babel Finance for violating a Representation in the Master Loan Agreement regarding its loan of $10M USDC. Babel was provided a deadline of 5pm ET on July 1st, 2022 to provide a full repayment of the loan or the equivalent in collateral. This comes after we have been in active dialogue with Babel Finance executives as they work to remedy their liquidity issues.
Based on the assessment of Babel’s situation, and the fact that Babel met a condition of default, we proactively issued the default notice. This action was taken to minimize losses to lenders in the pool, to allow us to restore the health of the pool and then move forward with business as usual.
The loan was taken from the Orthogonal USDC Pool we manage as a Pool Delegate on Maple’s platform. As the Pool Delegate, Orthogonal Trading has issued $518M in loans to date, and returned over $13M in interest payments to lenders since pool inception. This is the first and only default in the pool since launch, and the remainder of our loan book shows no signs of distress.
Full details of our lending pool health and capital structure can be found in our update issued on June 23rd, 2022, “An Update from Orthogonal Trading on Maple Finance’s USDC 01 Pool.”
The impact to our lending pool is minimal, as Babel’s loan constitutes around 4% of current assets. There will be a haircut in the short-term but we fully intend to pursue off-chain recovery of assets from Babel. First loss is taken by Orthogonal and external Pool Cover providers. The additional losses will be applied evenly across the $244M of lenders in the pool. We expect a haircut of between 3–5% to be applied.
This will be effective following the smart contract’s recognition of the default. It is important to note that there will be no scheduled borrower repayments before the effective date. Losses resulting from the default will be attributed equally to all lenders across the current $244M pool. Any recoveries will be distributed pro-rata to addresses lending at the effective date.
Losses are expected in any institutional lending business, and are priced into the interest rate charged to borrowers such that lenders still earn a positive return.
We will continue to grow our pool and provide capital opportunities for lenders and borrowers on the Maple platform. If you have any follow-up questions, suggestions, or would like to schedule a call to discuss in more detail with the team, please contact credit@orthogonal.trading.
