Underwriting methodology
Every note on Tessera is priced by a real expected-loss credit model, not a score or heuristic. The advance rate and yield fall directly out of the loss math. Notes that can't price within market tolerance are declined — not listed at an inflated yield.
Core formula
Two-channel expected loss
Grade bands
Period EL thresholds: A <0.6% · B 0.6–1.4% · C 1.4–3% · D 3–6% · E >6%
| Grade | Annual PD | Recourse LGD | Dilution base | Advance rate | Target APR | Typical deal |
|---|---|---|---|---|---|---|
| A | 0.20% | 3.5–7% | 0.5% | 87–90% | 9–13% | Enterprise debtor, stable originator, short-term |
| B | 1.00% | 6–12% | 1.1% | 82–87% | 13–21% | Mid-market debtor, moderate cash-flow stability |
| C | 3.00% | 10–18% | 2.2% | 75–82% | 20–28% | SMB debtor, early-stage originator |
| D | 8.00% | 18–27% | 4.5% | 67–75% | Stressed | — |
| E | 15.00% | 25–35% | 8.0% | 65–67% | Decline →30% | — |
Pricing waterfall
Risk controls
Reserve sizing formula
Stress multiplier of 3× reflects the factoring convention — a single debtor failing takes down all related receivables, not just the specific invoice. The 10% hard floor is the industry standard minimum reserve regardless of credit quality. The advance rate is 1 − reserve, clamped to [65%, 90%].
IFRS-9 alignment: The two-channel EL approach (credit + dilution, period-graded not annualized) maps directly to IFRS-9 Stage 1 expected credit loss provisioning for short-duration trade receivables. This means bank and fund counterparties can book Tessera notes without model translation. Annualized metrics are reported separately for yield comparison.