CREDIT RISK ASSESSMENT AND FAIR OFFER PRICE

This document outlays FUNDAUS (the Company) approved methodology for credit risk assessment and fair offer price determination and possible change in the offer as a result of re-assessment or payment delays.

1. ASSESSMENT OF CREDIT RISK

   1. General provisions

      1. The assessment of credit risk is an integral part of general assessment of the project and the project owner which is performed in accordance with Company’s internal procedures.
      2. This assessment is based on:

         - official (factual) data on the project and the project owner and to the extend applicable – on its associated companies, submitted by the project owner and/or retrieved from official registers and databases;

         - calculations and forecasts, made by the project owner and verified by the Company itself or in cooperation with invited experts, based on the experience thereof, good practice, reliable macroeconomic and market data, estimations and forecasts.

      3. The assessment is made, using a scoring-based methodology.
      4. The assessment of credit risk does not contradict with Key Investment Information Sheet (KIIS), filled in by the project owner, but supplements it as an independent and structured assessment.
      5. As a tool of the assessment of credit risk, an internal model in MS Excel, developed by the Company, which includes project risk assessment and credit score.

   2. Project risk

      1. The model for project risk assessment includes a comprehensive set of risks, typically associated with implementation of investment projects, a total of 13, as given in Table 1.1.

         Risk	Description
         1. Schedule risk	Likelihood of failing to meet project implementation schedule and the consequent effect of that failure. Encompasses imprecise forecast of length of time necessary to complete an activity, meet a milestone, or deliver a product.
         2. Risk of non- achievement of results	Likelihood of non-achievement of projected production capacity, sales, or financials at a certain period of time.
         3. Technology risk	Likelihood of technical and/or technological errors pertaining to production technology, facilities and equipment that may result in significant interruptions and idle time of production process that, in turn, may arise unforeseen growth of contingency budget and/or enhance the risk of non-achievement of results.
         4. Risk of project management	Risk that poor project management performance and/or lack of competence, experience, skills or qualifications may have a negative impact on performance of the project owner that may lead to unsatisfactory financials and/or significant divergence from the expected results at a certain time.
         5. Labour force risk	Likelihood of lack of capability to retain at time sufficient labour resources with appropriate education, skills and experience to ensure timely and efficient implementation of the project.
         6. Shortage of working capital	Likelihood of lack of money to ensure operating needs of the project owner that may impede the maintenance of acceptable liquidity, including procurements and provision of sufficient inventory, execution of orders and settlements with counterparties, fulfilment of current financial liabilities, provision of short-term investments according to the budget, etc.
         7. Risk of supplies	Likelihood of not finding of appropriate suppliers to provide the procurements of major raw materials in time and of demanded technical specification and quality; or the failure of the existing (acknowledged) suppliers to do so and failure to promptly find and retain substitute suppliers without harm to the continuity of production process and ready product output.
         8. Cost risk	Likelihood of cost overruns pertaining to the cost of all and any resource (e.g., due to market price growth or unexpected increase of consumption due to any reason) resulting to unforeseen growth of self-cost of ready product that cannot be compensated with the according increase of sale price.
         9. Risk of sales	Likelihood of not selling the forecasted amount of output within a certain time at a target price due to any reason, including intensive competition, insufficient market niche for the product, drop of purchasing power-backed consumer demand, negative changes in market conjuncture, etc.
         10. Sale price risk	Risk that the sale prices will temporarily or permanently go down while costs do not decrease enough to maintain the forecasted profit margin.
         11. Settlement risk	Risk that the counterparties' failure to fulfil their payment obligations at time; growth of bad debtors in the proportion that may affect the liquidity of the company and its abilities to perform obligations
         12. Financial risk	Likelihood of the project owner's failure to fulfil its obligations due to an overwhelmed burden of its financial liabilities, including those that exist and that may arise, as a result of a too high proportion of loan capital in company's financing sources, its underperformance or negative changes in financial capital markets or other reasons that result to the increase of interest payments and worsening of terms and conditions for using loan capital.
         13. Market risk	Likelihood of negative market fluctuations and the exposure of the business to them as a result of which the achievement of the planned results may be threatened or debatable.

      2. Likelihood is the probability of realization of the according risk for the assessed project that should be assigned by the Company. It is possible to choose from 0 to 10 where 0 is “zero probability” and 10 is “100% probability”. Table 1.2 below represents a general guideline for assessing the likelihood of risk.
         
         

         Table 1.2. General guidelines for assigning score to risk likelihood

         Score	Risk likelihood	Explanation
         0	The probability of occurrence of the risk is practically zero.	The risk is not expected to occur under any circumstances.
         1	The probability of occurrence of the risk is minimal/very low.	The risk is highly unlikely to occur, and there are minimal chances of it happening.
         2	The probability of occurrence of the risk is low.	While not highly probable, there is a slight chance of the risk happening.
         3	The probability of occurrence of the risk is medium.	The risk has a reasonable chance of occurring, and there is a noticeable possibility of its realization.
         4	The probability of occurrence of the risk is moderate.	The risk is more likely than not to happen, and there is a significant probability associated with its occurrence.
         5	The probability of occurrence of the risk is significant.	The risk is probable and expected to occur with a considerable chance of its realization.
         6	The probability of occurrence of the risk is high.	The risk is highly probable, and there is a substantial likelihood of its realization.
         7	The probability of occurrence of the risk is very high.	The risk is almost certain to occur, with an overwhelming probability associated with its occurrence.
         8	The probability of occurrence of the risk is critically high.	The risk is virtually assured to happen, with an extremely high probability of its realization.
         9	The probability of occurrence of the risk is almost inevitable.	The risk is virtually guaranteed to occur, with an almost absolute probability of its realization.
         10	Tre occurrence of the risk is virtually guaranteed.	The risk will definitely occur, with an absolute certainty of its realization.

      3. Consequence is the importance of the results of risk, or its negative effect on the business venture and the Project. It is also intended to be assessed from 0 to 10 where 0 is for “zero effect” and 10 is for the highest possible effect of the risk and its negative consequences. Table 1.3 below represents a general guideline for assessing the consequence of risk.
         
         

         Table 1.3. General guidelines for assigning score to risk consequence

         Score	Risk likelihood	Explanation
         0	No consequence	The risk has no discernible consequence or impact on the business. It does not pose any threat to the achievement of the business's objectives.
         1	The consequence of the risk is negligible.	The risk has minimal or insignificant impact on the business's objectives or operations.
         2	The consequence of the risk is minor.	The risk may cause slight disruptions or challenges but does not significantly hinder the business's objectives.
         3	The consequence of the risk is moderate.	The risk leads to notable disruptions or challenges to the business's objectives but still manageable within existing resources and capabilities.
         4	The consequence of the risk is medium.	The risk may require additional resources or adjustments to mitigate its impact and ensure the achievement of business objectives.
         5	The consequence of the risk is significant.	The consequence of the risk poses substantial challenges to the business's objectives. It may require substantial resources and efforts to address and mitigate its impact.
         6	The consequence of the risk is high.	The risk has a high consequence that significantly impacts the business's objectives and operations. It may require significant interventions and mitigation strategies to minimize its impact.
         7	The consequence of the risk is very high.	The consequence of the risk results in severe disruptions to the business's objectives and operations. It necessitates urgent and comprehensive actions to mitigate its impact.
         8	The consequence of the risk is critical	The risk has a consequence that critically affects the business's objectives and operations. It demands immediate attention and extraordinary measures to mitigate its impact and prevent severe damage.
         9	The consequence of the risk is catastrophic.	The consequence of the risk causes extensive damage and potentially jeopardizing the survival of the business. It requires immediate and drastic measures to mitigate its impact.
         10	The consequence of the risk is devastating.	The consequence of the risk leads to irreparable damage and complete failure of the business. It represents an existential threat and requires extraordinary measures to prevent its occurrence.

      4. Risk assessment is calculated automatically by multiplying the scores assigned to likelihood and consequence of each risk. The integral result is the arithmetic sum of each risk assessment, divided by total possible maximum (13 risks × 10 × 10) and expressed in per cents (out of 100). The lower is the percentage, the lower is the total risk and vice versa.
      5. Only the risks following into the categories “Negligible” (≤10%), “Minor” (>10%≤20%) or “Fairly low” (>20%≤30%) may be acceptable in terms of assessment of the Project for its placement on the Platform as an investment offer. The Financial analyst shall always make a negative conclusion on the Project if the integral Project risk assessment is higher than “Fairly low” (exceeds 30% out of 100%).

   3. Credit score

      1. Credit score is an integral scoring-based assessment of the project and the project owner, taking into account a) its main expected financials; b) qualitative factors, e.g., the scope of previous experience of project owner, or deal of start-up; and c) project risk assessment.
      2. The total number of indicators included in scoring is 13; each of indicators has its significance ratio. Criteria from 0 to 10 are assigned for each certain value diapason where higher figures are for better results. Each criteria has its relative share in total score, making a total of 100% (Table 1.4).
         
         

         Table 1.4. Credit score components

         Financial ratios	Credit score criteria											Relative share
         	0	1	2	3	4	5	6	7	8	9	10
         Previous practical experience in the field, years	0	1	2	3	4	5	6	7	8	9	10	5,0%
         Start-up component of the Project	10	9	8	7	6	5	4	3	2	1	0	8,0%
         Stability of CF	0	1	2	3	4	5	6	7	8	9	10	12,0%
         Free CF margin	0,0%	2,5%	5,0%	7,5%	10,0%	12,5%	15,0%	17,5%	20,0%	22,5%	25,0%	10,0%
         Availability of additional net revenues	0%	10%	20%	30%	40%	50%	60%	70%	80%	90%	100%	5,0%
         DSCR, average	0	1,5	1,05	1,10	1,15	1,20	1,25	1,30	1,35	1,40	1,45	10,0%
         Percentage of equity in total investments	0,0%	5,0%	10,0%	15,0%	20,0%	25,0%	30,0%	35,0%	40,0%	45,0%	50,0%	5,0%
         LTV	100%	97,5%	95%	90%	85%	80%	75%	70%	65%	50%	55%	10,0%
         Other financial liabilities, % of Platform loan	50%	45%	40%	35%	30%	25%	20%	15%	10%	5%	0%	5,0%
         Presence and significance of other encumbrances	10	9	8	7	6	5	4	3	2	1	0	2,0%
         Liquidity of collateral	0%	10%	20%	30%	40%	50%	60%	70%	80%	90%	100%	12,0%
         Overall project risk percentage	100%	90%	80%	70%	60%	50%	40%	30%	20%	10%	0%	11,0%
         Branch risk	10	9	8	7	6	5	4	3	2	1	0	5,0%

      3. The credit score is calculated automatically. The theoretic maximum of credit score is 100; the higher is the result, the more positive is project and project owner’s assessment.
      4. In case the credit score is below 70 out of 100, the Company rejects the project or sets up additional requirements for the project owner to comply with in order to reduce risks and make the project more economically sound. In this case, upon following the requirements, the project shall be subject to re-assessment procedure.

2. CATEGORIZATION OF OFFERS AND DETERMINATION OF OFFER PRICE

   Offer price is determined, based on the following parameters:

   (1) Risk-free interest rate;

   (2) Offer class category;

   (3) Quality of collateral;

   (4) Loan characteristic;

   (5) Other risks associated with the Loan.

   1. Risk-free interest rate

      To determine the risk-free interest rate, thespot rate of AAA rated bonds as published by the European Central Bank is used. It serves as a basis for determination of fair offer price with the rest of components, reflecting the characteristic of the loan and risks pertaining to the Project to be added.

   2. Offer class category

      1. Based on the results of assessment of the project owner and the project, as described in Sections 1.2 and 1.3, the projects that are deemed to be accepted by the Company are categorized as shown in Table 2.1. Offer class category is assigned to the offers, depending on the combination of the assessed project risk and credit score, ranged from AAA to A.
         
         

         Table 2.1. Categorization of offers depending on project risk and credit score

         		Credit score
         		≥ 90%	< 90% ≥ 80%	< 80% ≥ 70%
         Project risk	Negligible	AAA	AA+	AA
         	Minor	AA+	AA	AA-
         	Fairly low	AA	AA-	A

      2. Only qualitative offers (labelled as high quality or above) ,ranged from A+ to triple A, are admitted for publishing on the platform, whereas:

         - AAA - highest quality of Offer;

         - AA- to AA+ - very high quality of Offer;

         - A+ - high quality of Offer.

      3. The projects that have credit score been scored below 70 out of 100 and/or are exposed to risk, higher than “Fairly low” (above 30%) are automatically rejected and, therefore, are not subject to categorization.
      4. Upon categorization of offers, a score from 1 to 5 is assigned, depending on offer class category:
         
         

         Table 2.2. Assigning a score to offer depending on its class category

         Offer class category	Score to be assigned
         AAA	1
         AA+	2
         AA	3
         AA-	4
         A+	5

         The higher is the offer class category, the lesser is the score figure, meaning that a lower amount will be added to the risk-free interest rate as one of the components as a component of total offer price.

   3. Quality of collateral

      1. The quality of collateral is assessed by the in accordance with the criteria given in Table 2.3. The better is the quality of collateral, the lower is the scoring figure:
         
         

         Table 2.3. Assigning a score depending on quality of collateral

         	3	2	1
         Quality of collateral	Reduced quality (estimated losses ≥60%)	Conventional quality (estimated losses >30%≤59%)	High quality (estimated losses ≤ 30%)

      2. The score assigned to the collateral depending on its quality is used together with the average arithmetical of the score assigned to the loan characteristic, where the significance of the quality of collateral is 70%.

   4. Loan characteristic

      1. Loan characteristic parameters include:

         - Net Present Value (NPV) of the loan;

         - Loan term in months;

         - Loan repayment schedule;

         - Loan amortization, if any.

         - Whether operational and administrative costs and fees are assumed to be fully or partly covered by an additional loan administration fee charged from the project owner as a borrower.

         NPV is calculated by discounting future Loan repayments for the respective years, applying projected inflation rate in accordance with official forecasts of the European Central Bank available.

      2. A score from 1 to 3 is assigned to each parameter as shown in Table 2.4:
         
         

         Table 2.4. Assigning a score to loan characteristic parameters

         	3	2	1
         Quality of collateral	Reduced	Conventional	High
         NPV of the loan	≤500 000	>500 000 ≤2 000 000	>2 000 000
         Term, months	≤ 12	> 12 ≤ 24	> 24
         Repayment schedule	At maturity	Quarterly	Monthly
         Amortization	Fully	Partly	None

      3. An arithmetic average of scoring value assigned to all 5 parameters in accordance with Table above is calculated.
      4. The average score assigned to the Loan characteristic parameters is used together with score assigned to the collateral depending on its quality, where the average score assigned to the loan characteristic parameters is 30%
      5. Depending on whether the operational and administrative costs and fees are assumed to be covered by an additional fee, charged from the project owner as a borrower, a score of 0 to 1 is assigned, where 0 is in case it is assumed to be fully covered, 0.5 for the case when it is assumed to be partly covered and 1 if not covered by an additional fee.

   5. Other risks associated with the loan

      1. The purpose of this assessment is to reflect other risks, not included in general project risk categories as per Section 1.2, pertaining to this Loan specifically, and to include them in fair offer price.
      2. Some of the most typical risks that can be marked are reflected in Table 2.5. The list of risks specific to the loan can be reviewed or extended during assessment, depending to the specifics of the project. Each risk adds a score of 0.5 which is automatically summarized and a total figure is included in fair offer price.
         
         

         Table 2.5. Assigning additional score points to other risks associated with the loan

         Type of risk	Score to add	Explanation
         Risk of foreign jurisdiction	0.5	Location of collateral or project owner's main activity in a foreign jurisdiction may impose additional legal risks, e.g., pertaining to debt collection
         Time and/or resource-consuming enforced sale	0.5	Specific collateral (e.g., maritime vessel) may require additional time, efforts, and human resources for its enforced sale
         Exposure to European/international sanctions	0.5	Risk that new imposed or expanded sanctions will have a significant adverse impact on project owner's cash flow
         Political risk, except for sanctions risk	0.5	Risk that Project-related activity will be prohibited or restricted within the time frame of the loan (e.g., ecologic concerns, competition issues, etc.)
         Permits and licensing	0.5	Risk that the project owner loses or not obtains necessary permits or licenses for running the project
         Risk of premature loan repayment	0.5	Loan is repaid ahead of schedule
         Other risk (to be specified)	0.5
         Total		Total score depending on the risks present to be counted

   6. Determination of offer price

      1. Offer price is determined by summarizing the above-described parameters, as shown in Table 2.6:
         
         

         Table 2.6. Offer price calculation

         (1)	Risk-free interest rate	Market data
         (2)	Offer class category	Scoring result
         (3.1)	Quality of collateral (weight 70%)	Scoring result
         (3.2)	Arithmetic average of Loan characteristic parameters (weight 30%)	Scoring result
         (4)	Operational and administrative costs and fees	Scoring result
         (5)	Other risks associated with the loan	Scoring result
         	Calculated fair offer price	Total value

      2. Using the Table 2.6 data, the fair offer price it is calculated as follows: (1) + (2) + (3.1) × 70% + (3.2) ×30% + (4) and then rounded to 0.5% to obtain the final result.

3. RE-ASSESSMENT OF THE PROJECT AND RISKS INHERENT TO THE PROJECT

   1. 1. The criteria and frequency of re-assessment of the project and risks inherent to the project are determined in Company’s internal procedures.
      2. The monitoring of project development shall be conducted regularly, but at least once a quarter.
      3. The monitoring of changes of financial and economic data related to the project owner, including the financial performance of the project owner and its associated companies shall be conducted regularly, but at least once a half-year.
      4. Any single delay of payment obligations shall be treated as a warning indicator for Company to make more frequent monitoring actions, monthly during the first 3 months following the delay and quarterly – thereafter.
      5. The re-assessment of the project and the credit risk shall be made if any significant changes related to the project owner or the project during monitoring are found that may increase the risks, associated with the project and thus potentially endanger interests of the investors. Subject to the outcome of this re-assessment, this may result or not result in changes in the offer.
      6. Re-assessment of collateral is performed also if based on publicly available information and information, gathered by the Company, negative events, factors or trends that lead or are supposed to lead to decrease in collateral value are detected. The results of re-assessment of collateral, if differ from the ones of the initial assessment or re-assessment, make grounds for review of the total credit score as described below.
      7. If during re-assessment it appears that project risk is higher than 30% (above “Fairly low” category) and/or Credit score is below 70, for the purposes of determination of offer class category previously given Table 2.1 for categorization of offers is expanded as follows:
         
         

         Table 3.1. Expanded table for categorization of offers depending on project risk and credit score

         		Credit score
         		≥ 90%	< 90% ≥ 80%	< 80% ≥ 70%	< 70 ≥ 61	< 60 ≥ 51	< 50
         Project risk	Negligible	AAA	AA+	AA	AA-	AA	A+
         	Minor	AA+	AA	AA-	AA	A+	A
         	Fairly low	AA	AA-	A+	A	A-	BBB+
         	Below intermediate	AA-	A+	A	A-	BBB+	BBB
         	Near intermediate	A+	A	A-	BBB+	BBB	BBB-
         	Above intermediate	A	A-	BBB+	BBB	BBB-	Default risk

      8. In case during re-assessment project risk is classified as “Above intermediate” and credit score is less than 50 at the same time, it makes grounds to believe that such loan is very close to default, thus labelled “Default risk”, and requires enhanced attention. For the purposes of determination of fair offer price, the same rate component as for the previous, BBB- category, is applied. No actions related to debt collection are taken though unless the event of default actually occurs.
      9. In case during re-assessment the offer class category changed to a category lower than A+, the initially given Table 2.2 for assigning a score to offer depending on its class quality is extended as shown below:
         
         

         Table 3.2. Expanded table for assigning a new score to offer depending on its class category

         Offer class category	Score to be assigned
         AAA	1
         AA+	2
         AA	3
         AA-	4
         A+	5
         A	6
         A-	7
         BBB+	8
         BBB	9
         BBB-	10

      10. If offer class category lowered compared to initial assessment or previous re-assessment, a special attention shall be paid to the component “Other risks associated with the loan”, as described in Subsection 2.5, as these could have changed significantly and a re-assessment thereof shall be made with a particular attention and care.
      11. Factual delays of fulfilment of payment obligations also result in revision of the offer class category, assigned initially or as a result of re-assessment, in accordance with Table 3.3. Delays up to 30 days do not gave an impact on offer class category while delays over 30 and up to 60 days result in downgrading by one category and delays over 60 and up to 90 days result in downgrade by two categories. If there is no space for further downgrading, the lowest possible category, “Default risk”, is applied. This is the next lowest category after BBB-. For the purposes of determination of fair offer price, the same rate component as for the previous, BBB- category, is applied to it. No actions related to debt collection are taken though unless the event of default actually occurs.
          
          

          Table 3.3. Downgrading offer class category as a result of payment delay

          Initially or previously assigned Offer class category	New Offer class category to be assigned depending on days of payment delay
          	≤ 30 days	> 30 and ≤ 60 days	> 60 and ≤ 90 days	> 90 days
          AAA	No changes	AA+	AA	Default
          AA+	No changes	AA	AA-	Default
          AA	No changes	AA-	A+	Default
          AA-	No changes	A+	A	Default
          A+	No changes	A	A-	Default
          A	No changes	A-	BBB+	Default
          A-	No changes	BBB+	BBB	Default
          BBB+	No changes	BBB	BBB-	Default
          BBB	No changes	BBB-	Risk of default	Default
          BBB-	No changes	Risk of default	Risk of default	Default
          Default risk	No changes	No changes	No changes	Default

      12. Downgraded offer class category makes grounds for changes in the offer.
      13. If the delayed payment has been made and there are no current delays or the delay is up to 30 days, offer class category remains downgraded. The reason is that the downgraded offer class category caused changes in offer price and, once an increased interest rate was applied, it shall not be reduced in order to protect investors’ interest.
      14. If the results of re-assessment appear to be worse than the ones of the initial assessment, new risk category is assigned to the project and/or new scoring results and new fair offer price is applied in accordance with this re-assessment. Same is applied if offer class category is downgraded due to payment delays. It makes grounds for amending the terms and conditions of the Loan agreement to the extent these are related to the offer quality category and cause the necessity and obligations of the Company to make the respective changes in the offer and notify the investors.
      15. In case as in the result of re-assessment the project risk assessment and/or scoring results appear to be better than in accordance with the initial assessment that could give grounds to a lower offer price, a reduced offer price is not applied and the initially determined offer price remains in force in order not to effect negatively investors’ interests.

4. POSSIBLE FEES APPLICABLE AFTER THE LOAN IS ISSUED

   1. Loan administration and monitoring fees

      Loan administration and monitoring fees are charged by the Company from the project owner as a borrower according to the Price List to cover its respective expenses related to the monitoring of loan portfolio quality and taking timely actions, if required. These fees are not applicable to the investors.

   2. Collateral revaluation fees

      In cases prescribed in Company`s internal procedures, the loan collateral may require to be revaluated. All fees and expenses pertaining to collateral revaluation, including ordering a new or updating a previously submitted collateral appraisal, are covered by the project owner as a borrower. Company`s staff efforts pertaining to fulfilling the respective procedures are included in loan administration and monitoring fee. These fees are not applicable to the investors.

   3. Fees for changing the terms of the loan agreement

      Fees for changing the terms of the loan agreement are borne by the Company or charged from the project owner as a borrower if such fee is included in the loan agreement. For long-term projects (exceeding 12 months) this fee can be included in loan administration and monitoring costs.

      These fees are not applicable to the investors and no costs or losses arise for the investors related to changes in terms of the loan agreement unless it assumes changes in the offer price (for this case provisions of Section 3 apply). In case of changes in the offer, investors are automatically notified within 3 (three) business days, following these changes.

      Due to the considerations that the Company is not allowed to worsen the conditions of the investors, debt restructuring is not applied. Non-performing loans are subject to debt collection as prescribed in Company`s internal procedures.

      In case of debt collection, fees to cover Company`s expenses are applied to the investors according to the Price List. When the debt is recovered, subject to the collected amount, the fees initially charged and paid may be compensated from the proceeds. All collected amounts are distributed between the investors to repay the debt, including maximum reimbursement of fees related to debt collection procedure.

   4. Early loan repayment fees

      No fees are applied to the project owner as a borrower in case of early loan repayment and no compensation is assumed to be paid to the investors for early loan repayment.

   5. Fees for contingency funds

      The Company has not established a contingency fund, thus fees regarding contingency funds are not applicable.