When FX quietly erodes recoveries after the hard work is done
Sector: Private Credit – Distressed / NPLs
Asset Class: Distressed Credit | Multi-jurisdiction NPL Portfolios
Situation Type: Cross-border workouts and recovery phases
Primary Issue: Recovery leakage driven by FX exposure migration, not asset underperformance
The Situation
In distressed private credit, attention naturally focuses on legal recovery, asset value, and exit timing. FX is often treated as secondary – assumed to be unchanged from origination.
In reality, enforcement actions, restructurings, and asset take-overs materially change FX exposure. When this shift goes unmanaged, recovery value erodes quietly, often surfacing only after exits are completed.
Why This Scenario is Common
NPL governance frameworks are built for origination and monitoring – not transformation. As exposures change, FX risk migrates faster than documentation and oversight can adapt.
Why It Matters
Unmanaged FX across the NPL lifecycle doesn’t create headline losses.
It distorts IRR, reduces realised recoveries, and misattributes performance – all without triggering formal risk limits.
How This Is Typically Addressed
Rather than “adding hedges”, effective remediation requires lender-side structural review:
That approach:
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Re-mapping FX exposure as the workout evolves
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Aligning hedging decisions to recovery timing
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Preventing FX from re-entering via exits and cash sweeps
- Restoring decision clarity before capital is consumed
Primary Engagement Route
Capital Drag Audit™ – workout-focused review of FX, liquidity, and recovery mechanics
Read the IC Brief → (2-page decision summary)
Full structural narrative shared selectively on request.
Illustrative scenario for discussion purposes only. Not a transaction summary or client-specific case study.