# Losses & Impairments ## Expected loss and impairment Credit problems can emerge before a final loss is known. A borrower can become delinquent. A portfolio can underperform. A servicing issue can make recovery timing uncertain. When a risk is identified, the servicer can report an impairment or expected loss. The effect is immediate: the exposure reprices, and exit prices reflect the updated mark. ## Realized loss A realized loss is allocated through the waterfall. In a senior/junior deal, losses are absorbed junior-first: ```text Starting NAV: Senior 80 Junior 20 Total 100 Realized loss: 30 Ending NAV: Senior 70 Junior 0 Total 70 ``` The junior class absorbs the first 20. The remaining 10 reaches the senior class. ## Recoveries Recoveries move in the opposite direction. Senior classes are restored before junior classes recover value. That is the other side of the same bargain: junior takes losses first, and senior is repaired first. ## Protected balances Losses affect deal NAV. Funds already owed outside NAV remain intact. * Delivered coupon remains claimable. * Paid exit proceeds remain claimable. * Pending deposits remain outside the deal until accepted. * Cancelable requests remain cancelable under the applicable flow.