July Fund Commentary

Fund Commentary – July

The Coral Cove Private Credit Fund (the “Fund”) returned 0.85% (Class I Units) in July.  Annualized returns since inception (January 2021) are 9.79%.

Fund Insights

The Fund’s underlying portfolio (the “Portfolio”)  has exposure to approximately 50 invoice factoring, ABL, equipment finance, real estate, lender finance, specialty finance or similar type loans. Presently, the geographic weighting of the portfolio is approximately 73% to the US and 27% to Canada. Of these positions, the largest portfolio weights are 50% to invoice factoring, 26% to commercial finance (which includes asset-based lending, real estate and equipment financing), 18% to lender finance.

Notes from Underwriting

Throughout the summer, we’ve worked diligently on closing a $20 million facility to a private equity-owned oil and gas services company out of Texas.

The facility combines the flexibility of a revolving line of credit plus additional working capital against the company’s owned equipment (predominantly trucks and trailers – non-oil and gas specific). We’ve been working on the facility and running due diligence with the company since mid-June to fully understand their business and its needs and ensure we’re providing the right facility to satisfy our credit criteria and their own requirements to grow.

The intricacies of a potential client’s business and the time it takes to ensure we fully understand can take months, and this case was no exception. Our work was done through deep internal diligence, an external field exam, and third-party appraisals, combining all of the information gathered to slowly and methodically arrive at an approval our investment committee is comfortable providing.

We’re pleased that we are poised to close in the second week of September and are excited to embark on a good relationship with a new client.

Notes from Account Management

One of our most rewarding elements is having a ringside seat to our client’s success. 

After successfully negotiating to extend certain credit facilities for one of our longest-standing ABL clients for another year, we had a chance to look back at the peaks and valleys over the past six years.

When we closed the facility, the company had just come through a very challenging period; they were looking to retrench and had serious growth plans.

Those plans sputtered, were challenged, amended, and ultimately, for a number of contributing factors pretty much realized, it just took 2 or 3 years longer than expected. We were along for the ride all the way, listening, working with them, pivoting, and flexing on our credit facilities where we could.

This client is an under-roof home manufacturer. Undoubtedly, they benefited from the strength of the real estate market over the past years. Certainly, the aging population seeking to capitalize on the equity in their family home as they moved to the next stage of life, downsizing or building a dream home in a quieter setting was a ready market. But as the saying goes, the years of hard work and planning made them an “overnight” success.

Our renewed facilities are smaller than before; the company has successfully refinanced assets with a traditional low-cost lender, such as the mortgage on their manufacturing facility. But we have retained the working capital part of their business. The trust and relationship built over the years is worth a little more cost to this client; they know we will be able to flex and grow the lines as they may be needed to support the business as they continue to grow.