Warbler Labs has become aware of performance issues in the underlying loans on the Stratos pool, due to potential writeoffs on investments Stratos made in REZI and POKT. For reasons we go into below, Warbler Labs will backstop all losses related to these investments for the Senior Pool and Backers.
In Feb 2022, the Goldfinch protocol made a $20M loan to Stratos, a U.S. based credit fund. As they shared in their borrower profile, the Stratos partners have decades of credit experience, and at the time, the Stratos fund had a 5-year track record of $250M in investments with no late payments and 18%+ annualized returns. As part of the loan, both Warbler Labs and Stratos management participated as junior first-loss Backers.
Even before the loan, the Warbler Labs team knew the Stratos team. As Stratos shared in the above post, their founder was an early advisor to Goldfinch, and Stratos is an equity investor in Warbler Labs. We at Warbler considered this valuable because having strong relationships with your borrowers is very helpful in credit.
Since then, the Stratos loan has not performed as expected. Specifically, there are performance issues in two positions, REZI and POKT. Stratos first shared issues about POKT with Backers roughly one year ago, and REZI recently. (See more details about these loans below.) This is disappointing and unexpected to say the least, but the most important thing now is how we work to recover as much of the principal as possible, to protect the Goldfinch community, and to demonstrate Warbler’s continued commitment to integrity and transparency.
This will require a recovery process. At Warbler Labs, we pride ourselves in acting with the utmost integrity and putting investor needs above all else. We want to be clear that Warbler’s pre-existing relationship does not in any way affect our pursuit of maximum recovery from Stratos. To remove any doubt, Warbler Labs will take on the full risk and responsibility of recovery, and we have decided to backstop losses related to REZI and POKT, excluding Warbler’s and Stratos’ positions.
Stratos has used the $20M on 3 positions: $13M to Threecolts, $5M to REZI, and $2M to POKT. We believe Threecolts is performing strongly, but that the REZI and POKT positions will be written down to $0.
REZI: REZI is a real-estate tech company, focusing on apartment rentals in major U.S. cities. It appears that REZI has stopped making interest payments and we believe the full position will likely be written down to $0. We have asked Stratos to share an update on this situation with the community.
POKT: This position was not shared in the original proposed use of proceeds, but was shared by Stratos with Backers about a year ago. Warbler Labs was not aware of Stratos’ plans to make this investment. While “digital asset investments” were approved collateral in the loan document, this was only intended to allow for stablecoin positions (we have since updated the loan templates we use with borrowers to be more explicit about this in future deals). Since then, the position was sold at a near full loss, and Stratos added new collateral to cover the loss.
- To repeat from above, Warbler will backstop all losses due to REZI and POKT for the Senior Pool and Backers (excluding Warbler and Stratos). We will share more detail on how the backstop will work in the coming weeks.
- Separately, Warbler Labs will work with Stratos management to pursue all potential recovery options.