About Client
A mid-sized investment banking firm specialising in trading of distressed and special situation investment opportunities reached out to ValueAdd for stressed/ distressed debt origination and research support in 2016. The Client was a referral through one of our Clients. Client has executed USD 35bn+ trades, done restructurings across 25+ countries through a collective ~170 years of experience in its investment team.
The firm offers its institutional investors services such as distressed trading activities for the leveraged corporations/sovereigns’ that have stressed financials, and focus on workout, restructuring or liquidation process. The firm primarily targets large and complex transactions in insolvency claims globally across various sectors and also works on private note instruments both on a pre- or post-restructuring cases targeting insolvent corporates.
Business Problem
The Client wanted to keep its inhouse team focused on value-added initiatives such as client acquisition, deal execution, revenue expansion, and building strong client and channel partner relationships; and outsource the research or deal execution support to third-party research firms.
Their prior experience of having inhouse deal execution and research team had mixed results, including senior management (Partners) bandwidth locked into routine research, origination of ideas, etc, resulting in slow pace of new originations, sub-optimal maintenance of coverage impacting business volumes, losing competitive edge in the market, and losing potential investment opportunities.
The Scope of Work
Client was looking for a distressed debt origination support to increase its revenue. The coverage included Bank debt (Syndicated/ Club deals), insolvency claims, Bonds (secured/unsecured debentures), Special situation Re-org opportunities, structured products, and other illiquid assets covering a highly sophisticated and specialized segment of the credit research spectrum.
The Solution
- ValueAdd offered a multi-dimensional research support for the Client which included,
- Systematic screening processes to accelerate ideation or origination of new deals,
- Developed smart screens to spot investment opportunities across regions, selected sectors, and themes,
- The team created sector focussed screeners on 3rd party databases such as Bloomberg, and
- prepared insightful tear sheets for global credits across sectors including Energy, Oil & Gas to Retail and consumers focussed sectors,
- A well-structured combination of screening processes and analytical insights helped the Client identify actionable and targetable stressed/distressed/restructuring/liquidation cases.
- The feasible investment ideas were further analyzed by building detailed credit model, along with key operating metrics, financial spread through a detailed liquidation and recovery analysis and valuation.
- Stress tests and What-if scenario models (ReOrg/Liquidation/Special Situation) were built based on different assumptions and sensitivities based on operating metrics, commodity prices, and asset pricing.
- The team prepare detailed debt structures based on Waterfall model. Detailed organization structures are laid out clearly identifying the issuers, guarantors, and cross-guarantees.
- Asset Valuation and Recovery Analysis was carried out with justifiable assumptions for haircuts based on analyst judgement and in-depth study of detailed court proceeding documents.
- Trading comps and Transaction analysis were carried out as applicable to provide comprehensive view on the relative valuation.
- Prepared periodic dashboards for covering macroeconomic development (Sovereign) and other operational drivers for sectors (sector dashboards) and tracked them on a regular basis which essentially helped the Client stay on top of the market developments while chasing new opportunities.
Benefits Delivered
- Client expanded its business in New York, Hong Kong, and UAE, with a strong 150+ employees (from 10 in 2016). Client attributes ValueAdd as their partner in success.
- Starting 1st year, the firm’s trading desk accelerated trading revenues by 1.5x. Led to a saving of more than ~US$30,000 annually and still counting.
- The collaboration with ValueAdd helped release significant Client bandwidth and helped scale up their business.
- ValueAdd support made a meaningful impact on Client business and led to acceleration of idea generation and helped accelerate revenue.
- The service offering has helped Client analyse more than 100+ credits in year, track global economic developments and keep a close track on sectors alongside increasing the depth of research on new ideas.
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