Exception management

When monitoring surfaces a problem — a missed payment, a covenant breach, deteriorating financials, or a coverage shortfall — the loan enters exception management. The point of a defined exception process is to act early and consistently, rather than improvise under pressure once a situation has already worsened.

Depending on the situation and the rights in the MLA, an exception can be handled in several ways. A short breach with a credible path back may be granted a cure period. A changed but still-viable situation may warrant an amendment or restructuring of terms — a revised schedule, additional collateral, tighter covenants. A situation that cannot be cured leads to acceleration and, ultimately, default handling under the loss waterfall. Each path is a deliberate decision, recorded on the loan, not a quiet forbearance that lenders only discover later.

Authority to grant exceptions and restructurings sits with the delegate managing the pool — the same party whose first-loss capital is on the line if the exception doesn't resolve the situation. This is also why exception management is disclosed rather than hidden: marking a loan as impaired is a visible, on-chain event that affects that pool's published metrics and, where liquidity is tight, the speed of lender withdrawals, exactly as described under Exceptions, Amendments, and Default. A delegate carrying first-loss has reason to manage exceptions in lenders' interest, since the delegate absorbs loss first; the visibility of the process, the recorded decisions, and the resulting reporting are what let lenders confirm that incentive is actually being honored, rather than take it on faith.