August Fund Commentary

Fund Commentary – August

The Coral Cove Private Credit Fund (the “Fund”) returned 0.86% (Class I Units) in August.  Annualized returns since inception (January 2021) are 9.83%.

Fund Insights

The Fund’s underlying portfolio (the “Portfolio”)  has exposure to approximately 64 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% to the US and 25% to Canada. Of these positions, the largest portfolio weights are 53% to invoice factoring, 25% to commercial finance (which includes asset-based lending, real estate and equipment financing), 16% to lender finance.

Notes from Account Management

During the third quarter of 2021, we closed a $6 million asset-based lending deal to a highly seasonal consumer products manufacturer primarily focused on novelty balloons and candy products, principally selling to two large retailers. Our facility is secured by Accounts Receivable, Inventory, and Equipment. It was a two-year facility out of the gate. At the end of year one, the company had the option to terminate the facility and pay an early termination fee.

In May 2022, the company let us know that a former banker had approached them and were discussing a potential takeout of our facility. In July, we agreed to sharpen our pencil a little, providing some minor interest relief and retained the client. It was a win from the perspective of all stakeholders. We had put great effort into that first year to understand the business; we focused on the turnaround plan that the company was executing.

The company approached us with a request to end their existing lending relationship with a major US bank due to financial stress. In the past two years, they had faced harsh forbearance agreements that had resulted in reduced borrowing capacity and forced them to incur significant expenses in the form of bank fees and professional costs.

The toll that the stressed relationship had taken on the business could not only be measured in dollars; the executive and finance teams were exhausted and frankly wary of any lender. We had a hill to climb to get them on side. Ultimately, we helped them repay the bank and really focus on implementing their turnaround and growth plans.

Over the past two years the company has thrived. They have implemented technology into their manufacturing line, invested in state-of-the-art equipment, and have met and exceeded budgets and growth plans.

It has not all been smooth sailing, but the company has stayed the course. Shareholders have continued to provide meaningful support to the business with timely cash investments. Similarly, we have been flexible, most recently in accommodating the seasonal inventory availability bulge a full two months earlier than planned. Orders for holiday seasonal products landed earlier than expected and exceeded expectations, so we are supporting inventory production with an increased advance rate to meet demand.

Most recently, the company has successfully launched an industry-altering green line of products. This line of green products is 100% biodegradable, non-toxic, and pollution-free.

We are proud of the partnership with our client and being able to support this company through a tough transition and across the finish line in launching this sustainable product line.