FUND COMMENTARY
The Coral Cove Private Credit Fund (the “Fund”) returned 0.89% (Class I Units) in February. Annualized returns since inception (January 2021) are 10.06%.
Fund Insights
The Fund’s underlying portfolio (the “Portfolio”) (as at Feb 29,2024) has exposure to approximately 103 invoice factoring, ABL, equipment finance, real estate, lender finance, specialty finance or similar type loans. Presently, the geographic weighting of the portfolio is approximately 75.6% to the US and 24.4% to Canada. Of these positions, the largest portfolio weights are 41.6% to commercial finance, (which includes asset-based lending, real estate and equipment financing), 37.5% to invoice factoring and 18.8% to lender finance.
Notes from Underwriting
Part of good decision-making is having a strong and diverse investment committee. While it is important to be aligned in terms of the company’s credit criteria, risk appetite, and overall desired credit box, having an investment committee where members bring together their experiences from their past lending lives builds a robust library of knowledge and experience.
Sometimes, there are differences of opinion on a particular transaction, which are regarded as opportunities to learn from each other and grow.
Our investment committees are structured as a majority vote for approval; however, it has yet to occur when a particular member is opposed to a transaction or an aspect of the structure, and a conversation happens. It’s essential to our organization to make sure everyone feels good about what we do and that all risks have been mitigated. We work together to make sound decisions, considering all opinions for the best possible outcome.
Frequent meetings together are always key, which is why we meet weekly, at a minimum, so we can discuss what’s being worked on, level set together and move towards alignment on what we want to accomplish together.
It’s this kind of collaboration that, we believe, sets a strong foundation for our success.
Notes from Account Management
Why Factoring Matters
In an environment where time is a precious resource, we must be particularly vigilant about where we spend our time and efforts to grow the Fund’s portfolio.
On the surface, we may look at the time spent developing factoring leads, underwriting factoring opportunities, and onboarding and managing factoring fundings as less valuable than funding a large equipment deal or asset- based lending transaction. Each factoring deal may have an average funding size of $500K – $1MM, whereas an equipment or asset-based lending deal may be significantly higher $3MM+.
So then, by simple math, why spend the time?
The straightforward answer is factoring matters. In supporting small businesses through our factoring program, we are providing the fuel to keep the engine of the economy moving.
Historically, small and medium-sized businesses have played an important role in both the Canadian and US economies, significantly contributing to the GDP share and creating new jobs. These businesses are underserved by local banks and other credit providers. Factoring is a lifeline for these businesses, allowing them to pay their employees, fuel their trucks, and pay for raw materials.
So, to a certain extent, it is a numbers game; there are many prospective factoring clients, and the demand for the product is significant.
By utilizing a systematic approach to sourcing factoring prospects, implementing a simplified and standardized approach to underwriting, completing the legal documents in-house, and appropriately utilizing emerging technology coupled with excellent portfolio management software and knowledgeable team members, the factoring business opportunity becomes very scalable.
It feels good to provide much-needed financing to an entrepreneurial company selling an in-demand product while growing the Fund’s portfolio with secured risk adjusted transactions.
Our ideal factoring client is a growing company selling an excellent product or service to a large creditworthy customer. These are not clients who, absent our funding, would be out of business; these are thriving businesses. Further, these clients may graduate and move into an asset-based lending facility or need equipment financing, which, of course, we also provide.
In supporting these businesses, we are doing our part to support the larger economy, the supply chain, local communities, and the growth of our own business
April Fund Commentary