- All research on startup and the whole investment memo has been done for personal use of Akim Arhipov.
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Credory is specialized in issuing business loans secured by real estate. They have adapted their loan products for legal entities registered in Estonia. Their goal is to become a reliable financial partner for micro and small companies operating in Estonia.
- Estonian non-banking lender founded 2020
- Issuing real estate backed business loans in Estonia
- Regulated under Estonian Financial Intelligence Unit (RAB)
- Outstanding loan portfolio 5M€
- Profitable operations & good portfolio quality
- Solid team with relevant domain background
Problem & Product
Securing financing remains a challenge for many Estonian businesses due to limited opportunities, particularly for smaller companies. Established businesses may access loans against their revenues. But for the rest - a collateral is often required. And for bigger amounts the only collateral suitable is predominantly real estate. Such loans can be applied through a traditional retail bank. However those banks impose tight criterias, necessitating profitability, clean financial histories, and lengthy application processes. Mainly due to their over regulated licensing position.
Credory addresses this financing gap, providing a viable solution for businesses with solid plans and collaterals but not meeting traditional banking standards. Operating in the subprime business mortgage sector, they offer loans of up to 500,000€ with average yearly interest rates between 12-16%, and durations spanning 18-24 months. They serve as the preferred partner for businesses often overlooked by banks, with a significant percentage of their loans later refinanced once clients achieve 'bank compatibility.'
The non-bank business lending market in Estonia has matured over the past 15 years, with an estimated market size of around 400M€ annually. Key competitors include Hüpoteeklaen, Estateguru, and Nordic Hypo, with loan portfolios ranging from 40-65M€.
Credory maintains a focused business approach in Estonia, aspiring to achieve a 50M€ loan portfolio within the next 3-4 years. Their differentiation lies in a conservative credit policy, leading to lower application acceptance rates and portfolio default rates, enhancing operational efficiency and investor attractiveness.
Approximately 70% of Credory's financing is sourced from senior secured lenders, with the remaining capital derived from unsecured loans and equity. Notably, 50% of the total capital is contributed by parties associated with the owners, demonstrating a substantial commitment in every loan issued.
Established relationships with wealthy individuals and a credit line from an Estonian retail bank underpin their current financial structure. The senior secured bond issue further diversifies their funding structure, with plans for a minimum of four equally weighted funding streams for future growth, including new bond issues every six months.
Why to invest?
- Unique Offering: Credory stands out as the sole subprime real estate-backed bond offering in Estonia with 100% cash-generating assets as collateral. Other real estate backed bonds in the market are mostly for development projects, hence carry a much different risk.
- Short Period: Their bonds, typically offered for 2-3 years, are intentionally shortened for their debut bond to enhance attractiveness to investors.
- Good Risk/Reward Profile: Credory offers approximately three times the return compared to risk-free assets for a similar duration, presenting an appealing risk/reward profile.
- Profitable Company & Strong Financing Sources: Credory is a profitable company with established relationships and diverse financing sources, instilling confidence in investors.
- Solid amount of round already committed: The minimum bond commitment of 500k€ has already been presubscribed, with the current aim to close at 1-1.5M€, reflecting strong investor interest in Credory's offerings.
Credory is offering a senior secured bond
Summary of terms:
Issuer: Credory OÜ Issue size: 0.5-3M€ Period: 12 months Interest rate: 11% yearly Interest payments: monthly Collateral: Pledge on 1st rank real estate mortgage
Minimum ticket: 5000€ Security agent: Lextal tagatisagent OÜ Subscription period: 21.11.2023 - 30.11.2023 15:00 UTC+2 Securities registered in Nasdaq & tradeable (privately)
Pitch Deck & FAQ
- How do you assess and manage credit risk?
- When our first indication (interest rate and loan amount) is suitable for the customer then we proceed with internal credit assessment
- Collateral appraisal report (we don’t do inhouse valuations)
- Loan applicant finances (Credory only issue loans to companies and not private individuals)
- Loan applicant credit history (Creditinfo Eesti, IRS, official announcements, Google)
- Veriff (PEP and sanctions)
- We calculate loan amount on collateral appraisal report and not on loan applicants business plan or cash flow forecast
- Our LTV model valuates collateral type, area and possible enforcement costs
- We refinance part of our portfolio with a credit line from Bigbank so our credit risk procedures have been evaluated by them and risk levels are accepted. In other words those loan applications would have also been approved by the bank.
- What are your policies and procedures for dealing with defaulted loans?
- Credory has internal collection tree
- Emails, phone calls and Creditinfo notices
- Loan default is 90 days past due from the first payment (4 consecutive payments in debt)
- We start enforcement procedures after the loan default and send all necessary documents to enforcement agents who are responsible for collection.
- Are there any unique challenges or considerations with the Estonian real estate market that impact collateral value?
- For us the main criteria is liquidity. We evaluate how quickly we are able to sell our collateral if loans go default. Tallinn and Tartu areas are more liquid, the other areas are less liquid. Hence our max LTV in Tallinn & Tartu is higher than in other regions.
- The same applies to collateral values - in a liquid market there are more transactions and shorter periods of turnover therefore you can assess the value of the collateral with higher accuracy.
- What is your strategy for raising capital, and how have you structured recent bond issues?
- We are developing different financing sources in order to minimize our liquidity risks in the future. Our financing comes from wealthy individuals, retail investors, banking credit lines and loans associated with the owners. We aim to keep a healthy balance of the financing distribution so that no single capital source gives more than 30% for the total financing.
- We are developing our senior secured bond issue program and planning to issue new bonds every 6 months. We are offering monthly interest payments and the bonds will be issued with 1-3 years maturity depending on the general financing situation. During our debut bond issue we are putting our focus on 1 year bond to introduce ourselves to potential investors and build the relationship.
- What are your plans for portfolio growth in the coming years?
- We are aiming for a minimum of 100% portfolio growth y-o-y. The growth has to be profitable and the portfolio quality should be kept in good quality.
- Do you have any new product development initiatives or plans to enter new markets?
- We could expand geographically or introduce new credit types in Estonia. However we have agreed not to dilute our focus on new product initiatives as of now. There are plenty of local market opportunities for the next few years and focusing on this niche helps us to become better and more efficient in what we do. Our TOP 5 competitors have an outstanding portfolio of 25-75m€ so we still have a few years to reach that level.
- How do you plan to manage and sustain growth while maintaining a conservative credit risk policy?
- We are aiming to keep a high liquidity position during the upcoming times - hence taking market from our competitors who are struggling with their financing sources.
- By growing our total portfolio we are able to attract capital with lower cost - hence being able to issue longer term loans and opening up a new subsegment of the market.
- Are there any potential conflicts of interest within the management team or board?
- According to our credit and AML policy we are not directly financing projects related to the owners and management of Credory OÜ.
- There is currently one real estate developer with one particular project where one of our partners has individually allocated minority equity investment but as a minority shareholder in the project it doesn’t carry any risks for conflict of interest.
- How does Credory handle situations where the collateral value diminishes?
- We have developed an internal risk model where we assess the LTV levels of different collateral types in different areas. These LTV levels are protecting us against the decrease of collateral values.
- What rights do investors have in case of default or other adverse events?
- All our senior creditors are treated with similar principles. Every senior creditor or a group of creditors are entitled to a specific set of collaterals that protect them in case of the default of Credory. When Credory becomes insolvent the senior creditors can directly request the repayment of underlying loans to a new bank account outside of Credory. If there will be delays with the payments or any of the clients will default in front of the creditors then the collaterals can be directly enforced by the creditors.
- How is the investors' interest protected in terms of seniority and collateral?
- Explained in previous point
- What are the options for investors to exit their investment before the maturity date?
- Our bonds are registered in Nasdaq hence making them easily transferable between investors.
- Due to the local regulation though we can’t list our bonds publicly therefore the buyer and seller need to be connected directly. We are helping to facilitate a private list for sell and buy orders if needed in order to increase the liquidity for our bond investors.
- With the debut bond offer we are putting the focus to short term bonds and therefore reducing the need for additional liquidity for first time investors.
Term sheet from the link
For full bond issue documents and subscription info please contact the issuer:
Endrik Eller / 56944941 / firstname.lastname@example.org