FUND COMMENTARY-

The Coral Cove Private Credit Fund (the “Fund”) returned 0.89% (Class I Units) in April. Annualized returns since inception (January 2021) are 10.11%.

Fund Insights 

The Fund’s underlying portfolio (the “Portfolio”) (as at April 30,2024)  has exposure to approximately 101 invoice factoring, ABL, equipment finance, real estate, lender finance, specialty finance or similar type loans. Presently, the geographic weighting of the portfolio is approximately 83% to the US and 17% to Canada. Of these positions, the largest portfolio weights are 50.4% to commercial finance, (which includes asset-based lending, real estate and equipment financing), 26.8% to invoice factoring and 22.5% to lender finance.

Notes from Underwriting

Understanding our potential clients 

As collateral lenders, our primary focus on any potential opportunity is the company’s assets. Do we like the assets? Do they appraise appropriately? Will the value from those assets sufficiently support what the prospect wants to achieve? With this in mind, it’s easy for lenders to overlook other aspects, believing that collateral coverage is enough. To us, it’s not.

Our commitment to understanding our prospects and their businesses goes beyond a mere transaction. We strive to learn everything we can about their business, how they operate, their financial position, and how they intend to put our dollars to use.

We are not ‘loan to own ‘ lenders; we see ourselves as a key player to the success of our clients. By ensuring we lend into a viable situation, we provide the company with the best chance to achieve their goals, making their success our success. 

Hence the question we like to ask our prospects “Where have you been, where are you now, and where are you going?”

Notes from Account Management

Avoiding Cramming for the Exam

As I am once again reviewing and assigning deliverables to team members on yet another audit, I find myself relating to the end of the school year exam cycle.

I am reminded of the importance of good note-taking and ongoing attention to detail.

Whether we are delivering information to financial statement auditors or independent third-party examination firms engaged by our bank partners, it is just like preparing for the final exam. If your information is disorganized, hard to retrieve, or missing, the challenges in preparing are exacerbated.

We are five months into 2024, and our teams have been working with audit teams every month of the year so far.

In some ways, it is gratifying. It is like an exam, where we evidence our expertise and knowledge, and the feedback shows how well we are doing. On the other hand, it is challenging to execute with excellence in our daily jobs while also delivering data to the examiners.

As a team, we have learned the value of the Scout’s motto, “Be prepared.”

I appreciate how this may seem a little trite, but if we truly execute the little things, the daily things, we win on the big things and can execute when demands are intense.

Each team member brings unique skills to bear to ensure that Garrington operates as it should.

Our IT team ensures our systems remain operational and safe, consistently running tests and disaster recovery scenarios. The rest of the team takes for granted that everything works, but it does only because someone else is watching over it.

Our operations and accounting teams reconcile activity daily; we don’t wait for a problem to appear at the end of the month, and then we go searching.  We make funding decisions daily, and the checks and balances within our systems must be reconciled, or we risk making a poor decision using bad information.

Credit limits are constantly maintained, and our systems remind us when updates are required.

Facility limits and key expiry dates, including facility, insurance, and security registration dates, are maintained systematically so that they are addressed in a timely manner.

Client reporting items are documented, reviewed, and escalated as needed.

Management reporting items on the health of the various portfolios are generated by systems, reviewed, discussed, and escalated on a pre-determined schedule.

All of this is not to say that audits are not tough and a little daunting as we head into each one, but more to the point, that we can at least start by methodically going to existing systems and reports to answer the questions and take some comfort in knowing that we hit certain marks every day, week, month and quarter because we have set these goals for ourselves.

The opportunity that each audit brings is a chance to share what we do.  Additionally, occasionally, we also gain insight into an area where we can improve or, better yet, test our hypotheses to see if they stand up to scrutiny.  Being open to improvement has led to some enlightening conversations with auditors along the way; they see many commercial finance companies in their travels, so they can share insights and thoughts, which are appreciated.

Bluntly, the last 5 months have been a little challenging, beginning the year with financial audits and then immediately transitioning to bank facility audits.

If we had to cram for each exam, I know for sure we would have a burned-out crew, instead our time is spent understanding the questions being asked and ensuring we are delivering the details and supporting documentation that is relevant, timely and accurate from existing data and details.

As a team, we support investor reporting with the same vigor, ensuring that the information we deliver from our systems is relevant, meaningful, and accurate.

We are just now heading into our final exam for this year; we are expecting these results to be consistent with prior audits where we have earned the reputation for being timely with our answers, complete and detailed in our responses, and accurate in the particulars.

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