About Client
A mid-sized investment management firm specialised in trading of distressed and special situation investment opportunities reached out to ValueAdd for stressed/ distressed debt origination and research support in 2017. The Client’s investment banking team was already supported by ValueAdd since 2016. The Client proposed to extend similar support, as it intended to launch its first distressed debt fund in 2017. The 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 faced management bandwidth constraints alongside budget constraints for a dedicated in-house research team for its fund strategy. The senior management wanted to focus on raising money for the fund. And, wanted ValueAdd team to initiate ideas to be deployed..
The Scope of Work
The firm was looking for a stressed and distressed debt origination support for investments in its fund. 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 idea origination,
- 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
- Since 2017, Client launched three distressed funds and generated an average of ~80% returns for its investors.
- 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.
- The Client has been saving ~US$30,000 annually and still counting.
- The collaboration with ValueAdd helped release significant Client bandwidth and helped scale up their business.
- ValueAdd’s support made a meaningful impact on Client business and led to acceleration of idea generation and helped launch three funds, expand AUM, and deploy strong investment opportunities.
- 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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