> For the complete documentation index, see [llms.txt](https://quantixfinance.gitbook.io/quantixfinance-docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://quantixfinance.gitbook.io/quantixfinance-docs/credit-lifecycle/exceptions-amendments-and-default.md).

# Exceptions, Amendments, and Default

Not every loan runs to plan. When a borrower breaches a covenant, misses a payment, or shows material deterioration, the loan is marked **impaired** — a distinct, visible state that signals elevated credit risk before a loan is treated as in default. An impaired loan is not yet a loss: depending on the situation and the terms of the MLA, it may be cured and restored to good standing, amended or restructured, or, if the situation doesn't resolve, moved toward acceleration. Because impairment is visible at the pool level, it can affect pool reporting and, where liquidity is tight, the speed at which lender withdrawals from that pool are fulfilled — the risk is disclosed at the point it emerges, not only once it becomes a realized loss.

If the loan defaults, losses are absorbed in a fixed order:

1. **Collateral** is liquidated where the facility is secured, subject to the pool's liquidation limit per default.
2. The **delegate's first-loss capital** absorbs the next tranche of loss, up to its committed amount.
3. Only losses that exceed the first-loss layer reach **lender principal**.
4. Beyond the on-chain waterfall, the **MLA** provides legal recourse against the borrowing entity, including any cross-default rights.

This waterfall is stated identically here, in the application, and in the risk matrix, so a lender's understanding of their downside doesn't depend on which document they happen to read. Legal recovery is real but slow and jurisdiction-dependent, and the risk disclosures say so without softening it.