As an alternative lender, SR Alternative Credit (“SRAC”) addresses two key facets of the current economic environment: the inability of smaller companies to secure proper financing from traditional banking institutions and the inability of investors to generate sufficient yield from public credit investments.
SR Alternative Credit aims to create customized, structured transactions tailored to meet the needs of each borrower, yet also developed with a keen focus on collateral coverage, due diligence and risk modeling. We believe an alignment of interests results in better outcomes for all involved.
Jeff Haas
jhaas@sraltcredit.com
Peter Faigl
pfaigl@sraltcredit.com
Sam Adams
sadams@sraltcredit.com
OUR EXPERTISE
We provide asset-based lending solutions to borrowers seeking $10-50 million in financing, a segment of the lending market typically avoided by large traditional banks due to regulatory constraints and unattractive economics. Our expertise in the asset-based lending sector – especially in specialty finance, trade finance and transportation assets – means we can execute highly-customizable transactions secured by both common and esoteric asset types.
TRANSACTION CHARACTERISTICS
- We seek borrowers with meaningful capital at risk to ensure alignment of interests
- Transaction size of $10 million to $50 million
- Senior secured term loans, revolving facilities, principal transactions or any combinations thereof
- Maturities of 1-4 years
- Floating or fixed rate interest rates
- Interest rate and advance rate commensurate with risk and asset type
- Geography: US, Canada, South America, Australia, Europe and Asia
- High-touch approach with borrowers providing advisory services when needed
- Opportunistic and asset agnostic
ASSET EXPERIENCE
- Auto Loans and Leases
- Art and Antiquities
- Aviation/Transportation
- Commercial Receivables
- Credit Card Receivables
- Consumer Loans and Leases
- Charged-off Debt
- Film Financing
- Inventory
- Legal Settlements
- Machinery/Equipment
- Merchant Cash Advances
- Medical Receivables
- Rail
- Small Business Loans
- Tax Credits
- Trademark Royalties
- Other Hard or Esoteric Asset
OPPORTUNITY IN PRIVATE CREDIT
Structured properly, we believe private debt can provide a much greater safe haven than is typically understood. SR Alternative Credit’s transactions typically carry floating coupon rates and floors to protect against rising interest rates, while strong collateral coverage and proper deal structure address a wide variety of other transaction-specific risks.
YIELD IN A LOW-INTEREST RATE ENVIRONMENT
Investors have few options when it comes to generating yield from publicly-traded credit. Private credit provides investors with options that can offer distinct advantages and appeal in a low interest rate environment.
FILLING THE VOID
Meanwhile, tighter regulations have made it unfeasible and uneconomical for large financial institutions to lend to small- and medium-sized businesses – precisely the corporate segment that needs growth and expansionary capital the most. Such borrowers are increasingly turning to alternative lenders as a source of financing, which creates an attractive supply-demand dynamic between the companies that need capital and the investors that can provide it. When properly vetted and constructed, these private debt transactions offer risk-adjusted return potential that is typically greater than those available to traditional credit investors.
UNDERSTANDING THE RISK
SR Alternative Credit’s transactions are typically structured to seek to protect against rising interest rates, while strong collateral coverage and proper deal structure address a wide variety of other transaction-specific risks. Returns associated with private debt do not typically move in tandem with other assets, such as stocks, private equity or public bonds, in response to changing economic and market conditions. For the investor, these characteristics can help to increase portfolio diversification and reduce volatility.
ASSET-BASED LENDING
A properly structured asset-backed loan portfolio has the potential to offer attractive returns with minimal volatility, but the market is not simple. The process of identifying, structuring and underwriting a private debt transaction is complicated, variable and not a one-size-fits-all process.
SR Alternative Credit’s experience in sourcing and constructing transactions is a significant advantage the company offers to investors and borrowers alike.
TURNING ILLIQUIDITY INTO AN ASSET
The persistently low interest rate environment has resulted in a broad hunt for yield, and while conventional wisdom holds that higher yields equal higher risk, not all risk is created equally. Private lending typically yields above traded credit instruments because of the illiquidity of the underlying loan, not because asset-based lenders face materially higher issuer, interest rate or market risk. And importantly, prudent borrower selection and transaction structuring can address these issues, thus turning the illiquidity found in private debt into an asset, not a disadvantage.
STRUCTURAL CHANGES IMPACTING LIQUIDITY
Growing structural changes from financial services consolidation, increased capital requirements and stricter regulatory oversight on investment banks have significantly altered the normal market-making activities of many traditional fixed-income market participants. The result is a significant reduction in the liquidity profile for most US debt markets since the financial crisis. Investors should be alert to the fact that in a crisis situation, the liquidity normally available for many fixed-income instruments just may not materialize.
EMBRACING ILLIQUIDITY
If investors embrace the notion that traded market liquidity may be illusionary, then the advantages of asset-backed lending become clear. When properly constructed, with deep collateral coverage, disciplined due diligence and other risk mitigation techniques developed by SR Alternative Credit, the illiquidity inherent in asset-based lending can provide a yield premium without the typical increase in risk associated with higher-yielding alternatives. In our world, illiquidity is to be embraced, not shunned.
Note: Represents SRAC’s view of the current market environment. There can be no assurance that any SRAC investment will achieve its objectives or avoid substantial losses.
Representative Transactions*
*The above are examples of select investment themes that SRAC pursues when making investment decisions and SRAC does not pursue all of these investment themes for any single portfolio. There can be no assurance that any SRAC investment will achieve its objectives or avoid substantial losses.