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Speaker 1: Hello, and welcome to the Credit Edge, a weekly markets podcast.

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Speaker 1: My name is James Crumby. I'm a senior editor at Bloomberg.

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Speaker 1: This week, we're very pleased to welcome Fabian Crowbog, chief

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Speaker 1: investment officer and founder of north Wall Capital, a London

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Speaker 1: based credit investment firm. How are you, Fabian, I'm great.

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Speaker 2: Thank you.

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Speaker 1: Nice to see you, James, Thank you so much for

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Speaker 1: joining us today. We're very excited to get your credit

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Speaker 1: market views, and we're also delighted to have back on

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Speaker 1: the show Tollu Alamutu with Bloomberg Intelligence.

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Speaker 3: Hello, Tollu, Hello James. Great to be here again.

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Speaker 1: Thank you so Just to set the scene of it here,

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Speaker 1: credit markets have bounced back after taking a bit of

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Speaker 1: a hit earlier in August when stock Market's tanked and

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Speaker 1: the Vick Spear gauge sword. Global markets are generally calmer,

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Speaker 1: but there's still some lingering anxiety given the wild price

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Speaker 1: swings of the last few weeks. Liquidity is thin and

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Speaker 1: there's a lot of risk out there. It doesn't take

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Speaker 1: too much to spook markets. That said, we've had some

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Speaker 1: good news on the economy. Inflation appears to be cooling

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Speaker 1: and there's growing expectation of FED cuts coming in September,

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Speaker 1: which would ease pressure on the weak companies that have

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Speaker 1: been struggling with high borrowing costs for a while. Meanwhile,

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Speaker 1: there's more debt issuance. Companies are taking advantage of very

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Speaker 1: strong investor demand for corporate bonds and loans, with the

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Speaker 1: yields still at historically high levels. In general, there's more

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Speaker 1: demand than supply of corporate bonds and loans, which is

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Speaker 1: technical boost. Credit markets are supported by resilience in the

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Speaker 1: economy and investors are getting their hopes up about a

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Speaker 1: soft landing. But there are still things to worry about

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Speaker 1: debt defaults, bankruptcies, commercial real estate stress, war, the US election,

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Speaker 1: global geopolitics, recession risks haven't really gone away either, and

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Speaker 1: everyone's very overweight US assets compared to other regions. So

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Speaker 1: what's your take, Fabian? Where do we go from here?

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Speaker 2: Where do we go from here? Well, look, I think

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Speaker 2: that it certainly looks more stable today than it did

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Speaker 2: only about, you know, a year and a half ago,

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Speaker 2: when we were worried about energy security. You know, my

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Speaker 2: parents anecdotally are you know, live in Germany and there

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Speaker 2: was talk of turning off street lights and saving gas

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Speaker 2: by restricting warm showers. You know, we're certainly not in

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Speaker 2: that position anymore.

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Speaker 1: But in terms of credit markets, are we all clear now?

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Speaker 1: Because you know, as rates come down, that eases the

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Speaker 1: stress on on weak borrowers. That should clear everything up, right,

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Speaker 1: I mean, we're all a happy happy now.

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Speaker 2: Well, I'm not. I'm not entirely sure I would quite

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Speaker 2: go go that far.

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Speaker 3: Right.

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Speaker 2: We still have a very substantial amount of maturities coming

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Speaker 2: up in the next two to three years with capital

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Speaker 2: structures that are over leveraged, and I think a simple

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Speaker 2: reduction in base rates, you know, doesn't necessarily address the

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Speaker 2: problem of too much leverage in in companies that you know,

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Speaker 2: potentially you know, don't have that much equity value remaining.

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Speaker 3: Fabian, you mentioned a very important point that I think

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Speaker 3: a lot of people have been monitoring, which is the

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Speaker 3: sort of maturity war that we have coming up over

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Speaker 3: the next few years. What's your view then, on how

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Speaker 3: some of this gets worked out. Do you think that

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Speaker 3: we are bound to see many more restructurings and renegotiations

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Speaker 3: or do you think that some of those issues will

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Speaker 3: just bite the bullet and you know, issue debt wherever

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Speaker 3: they can, however they can, whether in public or private market.

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Speaker 3: How do you think this works out? Well?

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Speaker 2: I think, you know, I think the concept of a

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Speaker 2: maturity wall is something that you know, I you know,

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Speaker 2: it doesn't necessarily immediately lead to increased systematic risks. The

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Speaker 2: reason is that, you know, we are all aware of

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Speaker 2: you know, this, this refinancing need that's out there, and

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Speaker 2: that awareness then inevitably leads to the market trying to

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Speaker 2: find a solution and to you know, trying to address

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Speaker 2: address these issues. So you know, borrower sponsors will preemptively

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Speaker 2: try and think about having conversations with their lenders. You

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Speaker 2: will have more dislocation funds raised. You know, private credit

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Speaker 2: will will try and lean in with with some capital solutions,

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Speaker 2: et cetera. But you know what such a maturity wall,

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Speaker 2: you know, does lead to is a series of idiots

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Speaker 2: and creatic refinancing events. And that's exactly something that we

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Speaker 2: at north Wall are particularly experienced in in helping address

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Speaker 2: and resolve by offering our counter parties, you know, very

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Speaker 2: creative private credit capital solutions to to help reduce leverage,

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Speaker 2: to help address some of those those potential maturities and

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Speaker 2: potentially refinance. You know some or all of the lenders

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Speaker 2: in syndicates that that would like to get refinanced.

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Speaker 3: Yeah, so you talked a little bit about those sort

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Speaker 3: of idiosyncratic cases, and I think we'll sort of dive

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Speaker 3: into that a little bit later when we talk about

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Speaker 3: some of the sectors that maybe that you've been looking at.

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Speaker 3: But one of the broader issues with idiosyncratic solutions or

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Speaker 3: with tailor made solutions is creditor preference and changes in

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Speaker 3: creditor preference or priming or credit on creditor violence and

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Speaker 3: so on and all of that. What's your view on

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Speaker 3: how that plays out in a market where we are

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Speaker 3: dealing with this maturity wall. Even though yes, we are

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Speaker 3: aware or everybody should be aware that the maturity will

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Speaker 3: is coming up, some creditors may be more prepared to

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Speaker 3: provide financing than others. So how do creditors manage through

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Speaker 3: that situation without causing credit on creditor violence basically that

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Speaker 3: people have been talking about.

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Speaker 2: Well, I think I think this concept of creditor on

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Speaker 2: creditor violence isn't something that should hugely surprise anybody. Let

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Speaker 2: me explain. So, you know the reason that you know

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Speaker 2: this credit on credit violence can occur is the outcome

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Speaker 2: of you know, a vast volume of debtisians over the

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Speaker 2: last qulle of five ten years, maybe longer, with relatively

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Speaker 2: weak creditor protections. And so that opens the door to

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Speaker 2: the investors in these structures, who, let's remember, have a

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Speaker 2: fiduciary obligation to maximize returns and to protect certainly the

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Speaker 2: investments of their of their stakeholders. That opens the door

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Speaker 2: to them trying to find solutions to you know, not

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Speaker 2: only protect a position, but also capture potentially some of

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Speaker 2: the upside. So you know, I am not particularly surprised

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Speaker 2: to see that, you know, we have some slightly more

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Speaker 2: aggressive approaches to to these capital restructurings here and in

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Speaker 2: the US, and certainly coming to Europe where we are

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Speaker 2: most active, relatively relatively soon, So you know, and and interestingly,

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Speaker 2: you know, there are you know, freaquent the opportunities to

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Speaker 2: you know, play one side of the coin or try

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Speaker 2: and take advantage of the other side of the opportunity.

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Speaker 3: You mentioned weak creditor protection. I guess it's fair to

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Speaker 3: say that that was probably due to the environment, as

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Speaker 3: in rates were extraordinarily low. There was a lot of

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Speaker 3: money around to be invested, and so maybe people were

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Speaker 3: prepared to accept weaker covenants than they ordinarily would have.

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Speaker 3: But I have a two pound question given the situation

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Speaker 3: that we find ourselves now, one issue is that even

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Speaker 3: though rates are obviously still high, coming down but still high,

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Speaker 3: there is still a lot of money, at least in

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Speaker 3: private credits flushing around. So do you think that creditor

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Speaker 3: protections will be stronger this time around when refinancings come up,

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Speaker 3: or does the demand to sort of put money to

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Speaker 3: work mean that those protections might not be as strong

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Speaker 3: as people would like them to be. And a second

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Speaker 3: related question on protection and one issue has been that

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Speaker 3: even when the docs say X, the way that the

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Speaker 3: issuer interprets X may not be the way that the

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Speaker 3: bond holder or creditor interprets it. How should we be

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Speaker 3: thinking about the togo between the issuer and the creditor

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Speaker 3: when it comes to interpreting those protections, right?

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Speaker 2: I mean, look, I mean maybe it makes sense to

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Speaker 2: take a step back, right. So you know, we at

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Speaker 2: Northwall focus on the provision of private credit capital solutions

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Speaker 2: to Western European borrowers in the in the middle market

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Speaker 2: and even the lower middle market. Right, So we, you know,

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Speaker 2: tend to focus on situations where we are very much

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Speaker 2: by design the sole lender or at least a pivotal

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Speaker 2: lender in the capital structure in the provision of the solution.

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Speaker 2: This enables us to stay away from situations where there

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Speaker 2: is a tremendous amount of capital chasing any given opportunity

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Speaker 2: because of the size of the transactions which tend to

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Speaker 2: be a little bit smaller for north Wall, and because

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Speaker 2: of the perceived complexity of European credit investing. So what

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Speaker 2: that means for us is that we tend to seek

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Speaker 2: out situations where, while we might not have been the

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Speaker 2: company's first call, you know, we are you know, always

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Speaker 2: trying to be the first second call. But in a

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Speaker 2: situation where there is a real urgency, a situational complexity,

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Speaker 2: such as a refinancing, a you know, a lender that

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Speaker 2: is dropped out of a process, a failed asset sale,

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Speaker 2: whatever it might be, where there's a real need and

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Speaker 2: a real requirement for us to get involved in and

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Speaker 2: provide a solution. The benefit of that is that, you know,

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Speaker 2: we are never in situations where we are being asked

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Speaker 2: to contemplate providing capital without covenance or you know, without

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Speaker 2: the appropriate structural protections, which are important and particularly important

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Speaker 2: in Europe. So can I tell you what we'll happen

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Speaker 2: kind of in the larger transactions private credit market. Quite frankly,

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Speaker 2: I don't know. There certainly feels like there's uh, you know,

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Speaker 2: more capital chasing again, fewer opportunities. But I can tell

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Speaker 2: you about the transactions that that north Ball is involved,

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Speaker 2: and you know we most certainly you know, will continue

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Speaker 2: to insist on strong credit protections. So that's kind of answering,

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Speaker 2: you know, you know, the first question. The second question

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Speaker 2: around you know, interpretation of documentation. Again. You know, I

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Speaker 2: think it is companies choosing to you know, risk illegal

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Speaker 2: battle rather than you know, necessarily imposing losses on equity

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Speaker 2: or imposing losses on the different transfer of creditors. And

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Speaker 2: that is again a very much a tactical decision that

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Speaker 2: we you know, will not be exposed to because you know,

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Speaker 2: again we tend to be the sole lender, and we

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Speaker 2: tend to have very strong creditor protections and we are

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Speaker 2: in this market precisely for that reason.

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Speaker 1: But going into those trades, faban and tell you ensure

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Speaker 1: that you're not walking into something that is unsustainable and

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Speaker 1: you know, potentially doesn't perform well.

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Speaker 2: I think there are I mean, certainly, it all starts

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Speaker 2: at our origination and underwriting. So we try to enter

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Speaker 2: into situations where we have a very substantial amount of

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Speaker 2: downsid protection number one on valuation in particular, but number

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Speaker 2: two where we also have, due to the less competitive

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Speaker 2: nature of these situations, access to you know, more diligence,

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Speaker 2: you know, more information, better management time than we might

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Speaker 2: ordinarily have if we were competing in a you know,

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Speaker 2: and a much more broadly syndicated transactions. So that's kind

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Speaker 2: of where it starts now. You can never predict the future,

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Speaker 2: and you know, it is not unusual, of course for

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Speaker 2: companies in our portfolio to breach you know, what might

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Speaker 2: be tight covenant might be perceived as type covenants. And

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Speaker 2: at that point in time, it is our internal asset

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Speaker 2: management function that works with the investment team on encouraging

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Speaker 2: the company towards a path to arrange for refinancing, again,

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Speaker 2: you know, dependent on making sure that there's substantial equity

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Speaker 2: value and downstair protection em bettered in the position.

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Speaker 3: I have a follow up question on because because what

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Speaker 3: I'm hearing from you is sort of small can be

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Speaker 3: beautiful in a way, and that getting the second call

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Speaker 3: doesn't mean that you're not offered all the same things

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Speaker 3: as whoever got the first call. On small can be beautiful,

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Speaker 3: I guess one of the things that we're seeing happen

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Speaker 3: in asset management just broadly is consolidation. What is your

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Speaker 3: broad picture view on that, and do you think that

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Speaker 3: there is still room for medium sized players in the

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Speaker 3: industry to continue to function or do you think that

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Speaker 3: many asset managers just get hoovered up along the way,

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Speaker 3: whether they are specialists or not. Do you think in

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Speaker 3: the next few years we will see more consolidation or

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Speaker 3: less of it than we've seen in the last few.

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Speaker 2: Right, Just to pick up on your first point here,

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Speaker 2: which is you know you might be offered more as

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Speaker 2: a second call then the first call. Keep in mind

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Speaker 2: that many times the situations that we're dealing with don't

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Speaker 2: involve underlying the stress of the company, but merely a

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Speaker 2: need and urgent need for funding because a more traditional

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Speaker 2: source of capital has fallen through. So the misconception being

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Speaker 2: that because we'd have to close a deal in a rush,

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Speaker 2: we have access to less informations and correct because actually

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Speaker 2: what happens is there is a real determination by the company,

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Speaker 2: the sponsor, if it may be, to get a deal

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Speaker 2: over the line, and so everybody holds hands and says, look,

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Speaker 2: we've got to get north Wall over the line to

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Speaker 2: get this transaction closed in the next four to eight weeks,

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Speaker 2: whatever it might be. Let's get them all of the

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Speaker 2: necessary information, let's get the access to management, et cetera.

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Speaker 2: And so we actually, you know, very often feel that,

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Speaker 2: you know, we understand these companies much better because we're

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Speaker 2: part of the process rather than looking from the outside in.

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Speaker 2: On your second point around consolidation. Yet, consolidation has been

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Speaker 2: a big theme in our industry. We are, you know,

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Speaker 2: probably one of the few European self funded, entirely management

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Speaker 2: owned private credit players out there, and we very regularly

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Speaker 2: do get approached for at least a minority stake. You know,

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Speaker 2: we have for now decided to stay independent, you know,

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Speaker 2: and you know, some of our peers have chosen to

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Speaker 2: become parts of larger structures. You know, we've had no

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Speaker 2: impact on our capa raising ability at least for now independently,

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Speaker 2: and we've been able to fund the business as necessary.

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Speaker 2: So you know, consolidation will continue to occur, but you know,

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Speaker 2: we are we have no immediate plans to be part

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Speaker 2: of that.

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Speaker 1: So this all sounds great in theory, but can you

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Speaker 1: put some specifics on it in terms of you know,

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Speaker 1: walking through an example. And I'm thinking of my my

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Speaker 1: aunt who lives in Scotland, who doesn't really know what

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Speaker 1: this stuff is all about, but would like to kind of,

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Speaker 1: you know, tangibly interact with the concept. What what sort

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Speaker 1: of companies, what sort of situations we're talking about.

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Speaker 2: Look, I think in the past you know, call it

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Speaker 2: one to two years, we have you know, been more

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Speaker 2: and more active in sponsor backed situations. I can give

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Speaker 2: you an example. We helped a German industrial services business

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Speaker 2: that was supported by a very large syndicate or a

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Speaker 2: syndicate of many different mostly German and European banks over

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Speaker 2: the years. And you know that that position that that

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Speaker 2: syndicate came up to a maturity. Uh, the sponsor you know,

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Speaker 2: was interested in refinancing this with a with a bond deal.

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Speaker 2: This was right around the time that Putin invaded the

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Speaker 2: Ukraine and that to the bondie of falling apart. Strong

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Speaker 2: relationships with the banks ensure that the banks decided to

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Speaker 2: give the company some more time. But there was one

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Speaker 2: bank syndicate lender that did not want to participate in

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Speaker 2: this transaction. They held a portion of the senior debt

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Speaker 2: and they had the portion of a of a second

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Speaker 2: lean of they held the entirety of the second lean.

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Speaker 2: And we came in and we provided you know, that

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Speaker 2: missing piece, right, and that missing piece consisted of you know,

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Speaker 2: the missing piece of the of the of the senior,

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Speaker 2: the missing piece the entirety of the of the of

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Speaker 2: the second lean. Collectively, that was a you know, triple

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Speaker 2: digit million euros. It was a sizeable transaction, but it

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Speaker 2: required somebody to be able to piece these two pieces

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Speaker 2: together and importantly do this in four to four to

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Speaker 2: eight weeks. We now have a position that's you know,

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Speaker 2: roughly four times levered that you know very much meets

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Speaker 2: the return targets of our funds on a blended basis.

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Speaker 1: This sounds like a very unusual situation, very rare to see,

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Speaker 1: you know, once in a you know, you know, every

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Speaker 1: every five years or something, is it. I mean, these

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Speaker 1: are these common situations in Europe right now?

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Speaker 2: They are they are they are what we're seeing is

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Speaker 2: a very much and you know, decrease in the commercial

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Speaker 2: banks appetite to lend, and we certainly are able to

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Speaker 2: to step into that into those situations. And again it

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Speaker 2: comes up to this concept of maturity wall right. The

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Speaker 2: more of these events you have, even if a very

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Speaker 2: small percentage of them end up becoming problematic, you know,

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Speaker 2: we are there to support. We are there to support

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Speaker 2: our counter parties in those situations. And remember, you know,

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Speaker 2: the sponsor backed call it gap financing, private credit capital

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Speaker 2: solutions business. You know, that's one part of what we do.

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Speaker 2: You know, we also invest in, you know, asset backed situations.

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Speaker 2: We also acquire portfolios, you know, and we have a

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Speaker 2: a small but thriving legal assets funding business.

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Speaker 3: I have a question on returns. So I primarily cover

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Speaker 3: real estate, right, and after the factor lost like a

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Speaker 3: fifth or so of its value I'm talking euro ig

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Speaker 3: real estate lost the fifth of its value in twenty

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Speaker 3: twenty two. We were up double digits last year, but

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Speaker 3: this year we're only up single digits, right, So what

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Speaker 3: sort of returns are you looking at now in those

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Speaker 3: private credits stroke special situations that you have been talking about,

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Speaker 3: And how have those returns changed over the last couple

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Speaker 3: of years.

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Speaker 2: Look, we you know, you know, can get drawn into

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Speaker 2: you know, returns in this forum, but you know, suffice

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Speaker 2: it to say, we're targeting throughout our kind of funds

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Speaker 2: a return target that's you know, in the mid teens

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Speaker 2: at least net to our investors, and so that requires

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Speaker 2: us obviously to be extremely opportunistic. So there's a time

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Speaker 2: where you know, we found a lot of deal flow

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Speaker 2: in the sponsor backed space, you know, within real estate specifically,

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Speaker 2: you know, we have struggled to find situations where we

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Speaker 2: can generate those types of returns while still having a

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Speaker 2: sufficient amount of downside protection. That being set, we recently

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Speaker 2: closed a you know, led a deal you know that

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Speaker 2: was fairly substantial and where we're able to meet our

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Speaker 2: return objectives, albeit through a secondly in that situation.

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Speaker 3: So I was just asking, when you say the mid teens,

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Speaker 3: are we talking pre or post fees? And then maybe

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Speaker 3: we can go on to talk a little bit more

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Speaker 3: about real estate.

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Speaker 2: After so I was talking netal fees.

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Speaker 3: Okay, that's good to know. So on real estate again,

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Speaker 3: you know, sector very close to my heart. One of

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Speaker 3: the issues has just been the amount and speed at

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Speaker 3: which valuations of the portfolios have had to be written down.

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Speaker 3: And one of the because this has been clearly on

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Speaker 3: the office sector, not just here in Europe, but also

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Speaker 3: obviously in the US as well and probably all around

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Speaker 3: the world or in many places around the world within

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Speaker 3: real estate, are there sub sectors that you say that

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Speaker 3: you would say look better than others, or are there

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Speaker 3: countries that you would rather focus on than some others,

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Speaker 3: Like are you looking at Germany the Nordics? Where are

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Speaker 3: you looking at at the moment?

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Speaker 2: So I can tell you what we've spent some time.

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Speaker 2: We've looked at a lot of deal flow in Germany

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Speaker 2: and we haven't been able to get to get comfortable there.

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Speaker 2: You know, what we've found, generally speaking is that, you know,

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Speaker 2: a lot of the retail opportunities that we've seen, you

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Speaker 2: don't offer kind of that that certainty of downside protection

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Speaker 2: that we're looking for. Where we did get comfortable recently

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Speaker 2: is in supporting the refinancing of a large portfolio of

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Speaker 2: let's call it semi serviced offices with flexible working space

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Speaker 2: in the Nordics, where there was a very large private

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Speaker 2: equity sponsor who had, you know, real skin in the

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Speaker 2: game was putting in a substantial incremental ticket of equity

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Speaker 2: in the transaction, putting in place a long term sustainable

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Speaker 2: capital structure, cash paying interest where we detached at a

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Speaker 2: you know, comfortable double digit yield in a market that

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Speaker 2: even pre COVID had a very large proportion of homeworking,

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Speaker 2: you know, already kind of embedded within kind of societal norms.

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Speaker 2: So you know, again, you know, we found one of

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Speaker 2: those transactions, and we probably looked at one hundred generally

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Speaker 2: speaking of the last years, but we did not get comfortable.

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Speaker 3: Wait, so you're saying you looked at one hundred, so

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Speaker 3: it's very generalizable.

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Speaker 2: But what I can tell you is that the on

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Speaker 2: a relative basis compared to some of the large liquid

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Speaker 2: publicly traded structures where you are generating put potentially a

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Speaker 2: lower return to be in a subordinated unsecured position and

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Speaker 2: are subject to credit or on credit of violence, those

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Speaker 2: types of situations you know, we think offer much worse

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Speaker 2: compelling risk award.

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Speaker 3: You mentioned something very interesting there. You said you had

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Speaker 3: looked at one hundred deals and chosen just one. That's

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Speaker 3: obviously a very i'd say low hit ratio or low's

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Speaker 3: success ratio when you then consider the opportunities in real estate,

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Speaker 3: would you say that the opportunities then are not really

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Speaker 3: there given that it's just one in one hundred, or

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Speaker 3: would you say that this is a similar thing when

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Speaker 3: you're looking at other sectors as well. And also maybe

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Speaker 3: you could talk a little bit about the time frames

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Speaker 3: and holding periods that you have in your mind when

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Speaker 3: you're considering some of these investments.

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Speaker 2: Yeah, So, generally speaking, our hit rate, you know, in transactions,

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Speaker 2: tends to be we end up closing somewhere between you know,

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Speaker 2: two and four percent of the total number of deals

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Speaker 2: that we that we see. And you know, obviously, when

390
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Speaker 2: you're as opportunistic as we are, you know, you have

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Speaker 2: a lot of deals across your desk that you really

392
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Speaker 2: don't warrant your very detailed attention. So, yes, that's a

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Speaker 2: low hit rate, but it's something that makes sense. Sorry totally.

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Speaker 2: What was the second part of your question. So, we

395
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Speaker 2: tend to lend in these types of situations on a

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Speaker 2: you know, normal private credit basis, so it can be

397
00:23:35,920 --> 00:23:40,399
Speaker 2: anywhere between four and six years. It's very rare that

398
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Speaker 2: we have less than two years of call protection, and

399
00:23:45,080 --> 00:23:48,720
Speaker 2: most of the time our counter parties do seek to

400
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Speaker 2: refinance us somewhere around the first call date. So you know,

401
00:23:53,200 --> 00:23:56,280
Speaker 2: in our funds we tend to recycle capital during the

402
00:23:56,280 --> 00:24:00,680
Speaker 2: investment period because they you know, frequently can be relatively

403
00:24:00,720 --> 00:24:04,680
Speaker 2: short duration by choice of the borer. You know, we

404
00:24:04,840 --> 00:24:07,080
Speaker 2: often would obviously like to stay in for longer.

405
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Speaker 1: One of the other things you mentioned, Fabian, that you're

406
00:24:10,119 --> 00:24:13,879
Speaker 1: focus on is litigation finance. I'm interested in that concept.

407
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Speaker 1: What does it mean, how does it work?

408
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Speaker 2: Sure? I think it's probably worthwhile drawing a distinction between

409
00:24:22,119 --> 00:24:26,040
Speaker 2: single case litigation funding, where you know, you provide a

410
00:24:26,160 --> 00:24:32,359
Speaker 2: counter party with capital to pursue a particular litigation, and

411
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Speaker 2: what we do, which tends to be you know, lending

412
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Speaker 2: two law firms mostly against portfolio of a broad portfolio

413
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Speaker 2: of legal assets. So what that means in practice. You know,

414
00:24:43,560 --> 00:24:47,040
Speaker 2: one transaction that we have been involved in that has

415
00:24:47,080 --> 00:24:51,959
Speaker 2: been publicly disclosed is we provided a loan to a

416
00:24:52,040 --> 00:24:55,159
Speaker 2: London based law firm called Pocus good Head that was

417
00:24:55,200 --> 00:25:00,160
Speaker 2: active in some of the you know, very large marquee

418
00:25:00,200 --> 00:25:05,159
Speaker 2: litigations out there against car manufacturers in relation to the

419
00:25:05,200 --> 00:25:09,360
Speaker 2: diesel emission scandal, for example, that is involved in funding

420
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Speaker 2: you know that's involved in litigating on behalf of a

421
00:25:15,000 --> 00:25:20,960
Speaker 2: you know, hundreds of thousands of Brazilian claimants against against

422
00:25:20,960 --> 00:25:26,119
Speaker 2: mining companies who've caused some fairly substantial environmental damage, some

423
00:25:26,160 --> 00:25:29,480
Speaker 2: medical device liability cases, some data breach litigation, you know,

424
00:25:29,560 --> 00:25:33,720
Speaker 2: all litigation with an element of ESG predominantly in the

425
00:25:33,760 --> 00:25:36,640
Speaker 2: mass towards space. And so what we do in those

426
00:25:36,640 --> 00:25:40,359
Speaker 2: situations is without funding any individual case directly, you know,

427
00:25:40,480 --> 00:25:44,679
Speaker 2: we can get comfortable that provided that one, two, or

428
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Speaker 2: three out of in this instance call it twenty large

429
00:25:48,200 --> 00:25:51,000
Speaker 2: legal cases ongoing, provided that one to three of these settle,

430
00:25:51,359 --> 00:25:53,959
Speaker 2: you know, our capital will be protected. We can provide

431
00:25:53,960 --> 00:25:57,120
Speaker 2: this law firm with a loan secured by a very

432
00:25:57,160 --> 00:26:01,680
Speaker 2: broad portfolio of these legal assets. Uh. That takes advantage

433
00:26:01,720 --> 00:26:05,360
Speaker 2: of a few things. It takes advantage of north walls obvious,

434
00:26:05,840 --> 00:26:09,360
Speaker 2: you know, strength internal and in having a legal team

435
00:26:09,400 --> 00:26:12,560
Speaker 2: internally that can help underwrite the cases, a very strong

436
00:26:12,640 --> 00:26:15,679
Speaker 2: credit team that can ensure that the solvency of the

437
00:26:15,760 --> 00:26:20,480
Speaker 2: law firm is you know, you know, sufficient to make

438
00:26:20,520 --> 00:26:24,399
Speaker 2: it through through you know, the the lending horizon, you know,

439
00:26:24,560 --> 00:26:28,880
Speaker 2: and our ability again to take decisions quickly and and

440
00:26:29,320 --> 00:26:32,480
Speaker 2: be pragmatic and that's been a transaction that's worked out

441
00:26:32,760 --> 00:26:33,760
Speaker 2: particularly well for us.

442
00:26:34,240 --> 00:26:36,159
Speaker 1: But in simple terms, if you just break it down,

443
00:26:36,200 --> 00:26:39,080
Speaker 1: I mean, there's there's a lawsuit, the claimants expect some

444
00:26:39,119 --> 00:26:44,439
Speaker 1: money back, you're buying the lawsuit or the claim some

445
00:26:44,440 --> 00:26:48,120
Speaker 1: some discount, and then you're waiting for a judgment.

446
00:26:48,560 --> 00:26:50,679
Speaker 2: It's actually even simpler than that. It's think of it

447
00:26:50,720 --> 00:26:54,399
Speaker 2: as a company that expects to generate a substantial amount

448
00:26:54,400 --> 00:26:59,560
Speaker 2: of revenues from from litigations because it takes a share

449
00:26:59,640 --> 00:27:03,320
Speaker 2: of the seeds of you know, the individual claimants involved

450
00:27:03,359 --> 00:27:06,600
Speaker 2: in the litigations. They have no risk if the case

451
00:27:06,680 --> 00:27:09,159
Speaker 2: is lost. If the case is one, they make a

452
00:27:09,200 --> 00:27:11,840
Speaker 2: certain amount of money per per claimant, and we take

453
00:27:11,880 --> 00:27:14,040
Speaker 2: an the law from takes a portion of those of

454
00:27:14,080 --> 00:27:17,160
Speaker 2: those proceeds, and we lend, obviously on a risk adjusted

455
00:27:17,200 --> 00:27:21,200
Speaker 2: basis against the expected recoveries in that situation. So there's

456
00:27:21,240 --> 00:27:24,119
Speaker 2: no acquisition of anything at a discount. This is really

457
00:27:24,160 --> 00:27:26,960
Speaker 2: alone to a business that has a working gap on

458
00:27:27,040 --> 00:27:32,399
Speaker 2: need today and many multiples of expected revenues in the future.

459
00:27:32,359 --> 00:27:34,160
Speaker 1: And what kind of returns can you make on those.

460
00:27:34,840 --> 00:27:36,959
Speaker 2: Look in those types of funds, you know, we target

461
00:27:37,000 --> 00:27:41,040
Speaker 2: twenty five percent plus irs, and you know we are

462
00:27:41,400 --> 00:27:42,919
Speaker 2: we have historically outperformed.

463
00:27:42,920 --> 00:27:47,520
Speaker 3: Then it's interesting to hear you talking about litigation, finance

464
00:27:47,600 --> 00:27:50,119
Speaker 3: and all things to do with the law here. Obviously,

465
00:27:50,200 --> 00:27:54,119
Speaker 3: within BI we have over five hundred analysts covering not

466
00:27:54,200 --> 00:27:57,160
Speaker 3: just single names and on the equity and credit side,

467
00:27:57,160 --> 00:27:59,320
Speaker 3: but we also have a litigation team, so it's great

468
00:28:00,080 --> 00:28:03,639
Speaker 3: to hear others focusing on that area as well. I

469
00:28:03,640 --> 00:28:06,119
Speaker 3: had a follow up actually on sectors. So you know,

470
00:28:06,200 --> 00:28:08,440
Speaker 3: we talked a little bit about real estate and you've

471
00:28:08,440 --> 00:28:14,320
Speaker 3: mentioned mining and you know, environmental issues. What key sectors

472
00:28:14,359 --> 00:28:18,080
Speaker 3: would you say you're seeing the best opportunities or some

473
00:28:18,119 --> 00:28:20,680
Speaker 3: of the best opportunities in at this point, and would

474
00:28:20,680 --> 00:28:24,600
Speaker 3: those sectors be in the US, in Europe or elsewhere.

475
00:28:25,280 --> 00:28:28,800
Speaker 2: So, you know, we focus almost exclusively on Western Europe,

476
00:28:29,040 --> 00:28:32,560
Speaker 2: right and there again we tend to focus on you know,

477
00:28:32,640 --> 00:28:35,439
Speaker 2: the beer drinking countries over the wine drinking contries. But

478
00:28:35,560 --> 00:28:40,040
Speaker 2: we are entirely sector agnostic. You know, we've seen some

479
00:28:40,120 --> 00:28:44,040
Speaker 2: interesting deals in industrial services recently. You know, the one

480
00:28:44,080 --> 00:28:46,760
Speaker 2: area where we tend to stay away from is you know,

481
00:28:46,880 --> 00:28:49,920
Speaker 2: things that are very much tech enabled or that rely

482
00:28:50,040 --> 00:28:53,560
Speaker 2: on kind of the underwriting of enterprise values. So we

483
00:28:53,600 --> 00:28:56,320
Speaker 2: tend to focus on businesses that you know, produce cash,

484
00:28:56,400 --> 00:29:00,880
Speaker 2: have strong asset base and are you know, provide us

485
00:29:00,880 --> 00:29:02,280
Speaker 2: with a good amount of downsid protection.

486
00:29:02,720 --> 00:29:05,479
Speaker 1: We you mentioned Western Europe. We are sitting in New

487
00:29:05,520 --> 00:29:09,560
Speaker 1: York City. You are presumably not here on holiday. Are

488
00:29:09,600 --> 00:29:14,520
Speaker 1: you talking? I know, are you talking to US investors?

489
00:29:14,520 --> 00:29:16,880
Speaker 1: And if so, what's their response when you kind of

490
00:29:16,880 --> 00:29:18,800
Speaker 1: pitch them Europe as an investment. I mean, it seems

491
00:29:18,800 --> 00:29:21,640
Speaker 1: to me that there is this huge like home bias.

492
00:29:22,200 --> 00:29:24,520
Speaker 1: There isn't a huge amount of like understanding of all

493
00:29:24,560 --> 00:29:27,800
Speaker 1: of the different things that go on in Europe generally,

494
00:29:27,800 --> 00:29:30,560
Speaker 1: and there's you know, almost like an aversion to the

495
00:29:31,080 --> 00:29:33,360
Speaker 1: you know, just unknown of Europe. So how do you

496
00:29:33,440 --> 00:29:34,640
Speaker 1: kind of talk to them about that?

497
00:29:35,000 --> 00:29:39,000
Speaker 2: Yeah, I mean, look I totally understand. I you know,

498
00:29:39,200 --> 00:29:43,080
Speaker 2: lived in the US for ten years. I am originally German,

499
00:29:44,080 --> 00:29:46,280
Speaker 2: but I went to school here in New York City,

500
00:29:46,320 --> 00:29:49,880
Speaker 2: and you know, I really you know, you know, I

501
00:29:50,000 --> 00:29:52,320
Speaker 2: spent a lot of time here, and there is that

502
00:29:52,600 --> 00:29:57,920
Speaker 2: perceived that that perception that Europe is more risky, less attractive,

503
00:29:57,920 --> 00:30:00,280
Speaker 2: too small, not worth a hassle, et cetera. But what

504
00:30:00,320 --> 00:30:03,040
Speaker 2: we're seeing from the LPs that we speak to. So,

505
00:30:03,240 --> 00:30:04,840
Speaker 2: you know, I spend a lot of time in the US.

506
00:30:04,880 --> 00:30:08,840
Speaker 2: There's a lot of LP capital here that has an

507
00:30:08,880 --> 00:30:13,280
Speaker 2: interest in Europe. And generally speaking, what I've seen in

508
00:30:13,320 --> 00:30:15,360
Speaker 2: the last twenty years that i've seen this, that i've

509
00:30:15,400 --> 00:30:18,280
Speaker 2: been doing this is that you know, when there's a

510
00:30:18,320 --> 00:30:23,640
Speaker 2: cyclical change, investors tend to pull back, these are both

511
00:30:23,680 --> 00:30:26,800
Speaker 2: gps and LPs, their interest and the expertise back into

512
00:30:26,840 --> 00:30:30,440
Speaker 2: the US. There's generally this perception that the deal flow

513
00:30:30,600 --> 00:30:33,880
Speaker 2: is more interesting here. Rates are higher. You know, there

514
00:30:34,000 --> 00:30:36,000
Speaker 2: is going to be more opportunity, it's a bigger market,

515
00:30:36,040 --> 00:30:38,120
Speaker 2: it's simpler, we understand it. We're going to do more here.

516
00:30:39,520 --> 00:30:42,680
Speaker 2: But because of that, what also tends to happen relatively

517
00:30:42,760 --> 00:30:46,720
Speaker 2: quickly is that the US opportunity tends to be arbitraged

518
00:30:47,120 --> 00:30:51,280
Speaker 2: away more quickly than the European opportunity. While at the

519
00:30:51,280 --> 00:30:54,520
Speaker 2: same time in Europe, because this capital gets sucked out

520
00:30:54,520 --> 00:30:57,120
Speaker 2: of Europe into the US, both this capital from the

521
00:30:57,120 --> 00:31:00,960
Speaker 2: GP side but also the LP interest, the opportunity set

522
00:31:00,960 --> 00:31:04,560
Speaker 2: in Europe is particularly interesting, and so what we're seeing

523
00:31:04,640 --> 00:31:09,000
Speaker 2: is that investor interest tends to go US first. Europe second,

524
00:31:09,240 --> 00:31:12,440
Speaker 2: and at some point look moves over to Asia. And similarly,

525
00:31:12,480 --> 00:31:14,640
Speaker 2: when it comes to you know, kind of where we

526
00:31:14,680 --> 00:31:17,400
Speaker 2: sit on the opportunistic end of private credit. You know,

527
00:31:17,520 --> 00:31:22,080
Speaker 2: obviously LPs first start by building their core private credit allocations.

528
00:31:22,440 --> 00:31:25,000
Speaker 2: Then they start to look a little bit further field

529
00:31:25,040 --> 00:31:28,200
Speaker 2: specialty finance, et cetera. And then comes opportunities to credit

530
00:31:28,240 --> 00:31:32,000
Speaker 2: and eventually distressed. And so the LPs where we are,

531
00:31:32,320 --> 00:31:34,920
Speaker 2: you know, having the best conversations at the moment, are

532
00:31:34,960 --> 00:31:38,760
Speaker 2: those with that institutional memory to know that, Okay, I

533
00:31:38,760 --> 00:31:41,640
Speaker 2: can see the returns in the US decreasing, while I

534
00:31:41,640 --> 00:31:44,360
Speaker 2: can see still some really interesting opportunities in Europe. We're

535
00:31:44,400 --> 00:31:47,160
Speaker 2: going to start to shift some of our attention to Europe.

536
00:31:47,200 --> 00:31:49,000
Speaker 2: And that's certainly something that's happening now.

537
00:31:49,440 --> 00:31:51,720
Speaker 1: So it's a trend that just started. You expect it

538
00:31:51,760 --> 00:31:52,440
Speaker 1: to accelerate.

539
00:31:52,880 --> 00:31:54,880
Speaker 2: It's a trend that started probably in the middle of

540
00:31:54,960 --> 00:31:57,360
Speaker 2: last year, and is you know, going a full steam

541
00:31:57,520 --> 00:31:57,960
Speaker 2: for sure.

542
00:31:58,400 --> 00:32:01,160
Speaker 3: One of the issues I guess with looking at Europe

543
00:32:01,200 --> 00:32:03,760
Speaker 3: LUSUS years, and I think you alluded to that earlier,

544
00:32:03,880 --> 00:32:09,240
Speaker 3: is is scale or size When these investors are looking

545
00:32:09,560 --> 00:32:13,080
Speaker 3: at the Europe opportunity, do you think that the size

546
00:32:13,400 --> 00:32:17,360
Speaker 3: is there for some of these investors to really get

547
00:32:17,360 --> 00:32:20,160
Speaker 3: stuck in or do you think that that's something that

548
00:32:20,200 --> 00:32:21,880
Speaker 3: we will only see in future.

549
00:32:22,680 --> 00:32:26,040
Speaker 2: No, I think there's you know, this is a very

550
00:32:26,040 --> 00:32:29,000
Speaker 2: common misconception in Europe as well, which is that it's

551
00:32:29,000 --> 00:32:33,240
Speaker 2: not scalable. You know, we have found that Europe is

552
00:32:33,240 --> 00:32:38,160
Speaker 2: certainly very very scalable. We are laser focused on scalability

553
00:32:38,200 --> 00:32:40,960
Speaker 2: and everything that we do precisely in order to be

554
00:32:41,000 --> 00:32:44,040
Speaker 2: able to address that investor demand. I think there's one

555
00:32:44,120 --> 00:32:48,880
Speaker 2: misconception about Europe, and that misconception is that, you know,

556
00:32:49,360 --> 00:32:51,280
Speaker 2: if you find deals there, they have to be of

557
00:32:51,280 --> 00:32:54,320
Speaker 2: a minimum size to be worth your time. While what

558
00:32:54,360 --> 00:32:57,360
Speaker 2: we have learned is to scale into deals in Europe

559
00:32:57,440 --> 00:33:01,040
Speaker 2: you very often have to start a little bit smaller

560
00:33:01,680 --> 00:33:06,360
Speaker 2: and grow with your counter party into transaction sizes over time.

561
00:33:07,360 --> 00:33:09,920
Speaker 2: So it just takes a little bit longer to build

562
00:33:09,960 --> 00:33:12,920
Speaker 2: those relationships. But once you you know are there, you

563
00:33:12,960 --> 00:33:15,320
Speaker 2: are embedded, You get this repeat deal flow and you

564
00:33:15,320 --> 00:33:18,160
Speaker 2: can take advantage of the fact that your really does

565
00:33:18,240 --> 00:33:21,719
Speaker 2: favor locals or it really does favor incumbents, and it

566
00:33:21,760 --> 00:33:24,920
Speaker 2: works to your advantage. We certainly have found ourselves always

567
00:33:24,960 --> 00:33:27,320
Speaker 2: to be in a position where you know, we have

568
00:33:27,400 --> 00:33:31,560
Speaker 2: more deal flow than opportunity, more deal flow then capital

569
00:33:31,560 --> 00:33:35,480
Speaker 2: available and hopefully made continue.

570
00:33:35,640 --> 00:33:38,160
Speaker 1: What about the scalability of the returns you're talking about,

571
00:33:38,160 --> 00:33:41,760
Speaker 1: you know, double digit on middle market private credit, twenty

572
00:33:41,800 --> 00:33:44,920
Speaker 1: five percent litigation finance. Presumably that kind of return comes

573
00:33:44,920 --> 00:33:47,239
Speaker 1: from being in the niche, It doesn't scale up.

574
00:33:47,520 --> 00:33:52,800
Speaker 2: I mean, yes, certainly there are while you know, certainly

575
00:33:52,840 --> 00:33:56,800
Speaker 2: there are elements of truth to that. Although the private

576
00:33:56,840 --> 00:33:59,480
Speaker 2: credit that a deal that I mentioned to you, you know,

577
00:33:59,680 --> 00:34:02,040
Speaker 2: was a sorry, the legal asseteal that I mentioned to

578
00:34:02,040 --> 00:34:04,080
Speaker 2: you earlier, you know, at the very end was almost

579
00:34:04,120 --> 00:34:07,960
Speaker 2: a two hundred million dollar transaction that got refinanced by

580
00:34:08,680 --> 00:34:11,879
Speaker 2: a half a billion dollar deal by by a US

581
00:34:11,960 --> 00:34:16,120
Speaker 2: hedge fund. Right, So that falls very much within the scale,

582
00:34:16,719 --> 00:34:19,880
Speaker 2: within the scalability requirements I think of most investors, certainly

583
00:34:19,880 --> 00:34:23,480
Speaker 2: gets our attention. And then you know, when it comes

584
00:34:23,480 --> 00:34:25,520
Speaker 2: to these private credit solutions, I think there's there's some

585
00:34:25,640 --> 00:34:29,200
Speaker 2: truth to that. You know, there's going to be only

586
00:34:29,200 --> 00:34:31,160
Speaker 2: so much you can do at this very high end

587
00:34:31,160 --> 00:34:33,920
Speaker 2: of our return range, you know, but I don't think

588
00:34:33,960 --> 00:34:36,640
Speaker 2: anybody's really going to complain if you delivered to them

589
00:34:36,800 --> 00:34:40,040
Speaker 2: kind of teens net returns, you know, at a slightly

590
00:34:40,080 --> 00:34:40,800
Speaker 2: bigger scale.

591
00:34:41,719 --> 00:34:44,520
Speaker 3: One of the other issues I guess that's come up

592
00:34:44,960 --> 00:34:50,480
Speaker 3: this year has been unexpected and expected elections, especially in

593
00:34:50,520 --> 00:34:53,680
Speaker 3: your given what's happened in France and the impact that

594
00:34:53,680 --> 00:34:59,080
Speaker 3: that had on spreads and just valuations in general. What

595
00:34:59,120 --> 00:35:01,560
Speaker 3: would you say then, the key risks in Europe visit

596
00:35:01,760 --> 00:35:07,040
Speaker 3: the election cycle still? Is it geopolitics, is it commodity prices?

597
00:35:07,080 --> 00:35:09,399
Speaker 3: What what do you think are the key risks for

598
00:35:09,520 --> 00:35:12,719
Speaker 3: the geographic area that you're focusing on.

599
00:35:13,680 --> 00:35:16,080
Speaker 2: Look, I think you know again, it's a It's a

600
00:35:16,080 --> 00:35:18,840
Speaker 2: good question and one that gets asked by our investors

601
00:35:18,880 --> 00:35:21,880
Speaker 2: a lot. You know. I'm you know, I'm you know.

602
00:35:21,920 --> 00:35:27,320
Speaker 2: I've been investing in Europe now for almost twenty years,

603
00:35:27,680 --> 00:35:32,360
Speaker 2: always from London, and I've seen crisis after crisis after crisis.

604
00:35:32,400 --> 00:35:35,480
Speaker 2: We had a sovereign dead crisis, we had COVID, taper, tantrum,

605
00:35:35,480 --> 00:35:39,080
Speaker 2: et cetera. We see all these different issues that pop up,

606
00:35:39,480 --> 00:35:46,279
Speaker 2: and what I have learned is that Europe is surprisingly resilient.

607
00:35:47,200 --> 00:35:47,480
Speaker 3: You know.

608
00:35:48,000 --> 00:35:50,759
Speaker 2: Some of the negative factors that are certainly prevalent in

609
00:35:50,800 --> 00:35:53,200
Speaker 2: the European Union it's in ersia, it's bureaucracy, et cetera.

610
00:35:53,640 --> 00:35:57,040
Speaker 2: Also make it much more difficult for you know, any

611
00:35:57,120 --> 00:36:00,239
Speaker 2: change in government to impact and affect radical change. So

612
00:36:01,200 --> 00:36:06,080
Speaker 2: I am less concerned potentially certainly today than I was,

613
00:36:06,400 --> 00:36:09,400
Speaker 2: you know, at the onset of the of the Ukraine

614
00:36:09,840 --> 00:36:13,880
Speaker 2: Ukraine conflict. So you know what, we're trying to find

615
00:36:14,040 --> 00:36:19,080
Speaker 2: total Louis situations where you know, regardless of what recession

616
00:36:19,120 --> 00:36:26,360
Speaker 2: case we model, our investors' capital is protected independently of

617
00:36:26,880 --> 00:36:29,800
Speaker 2: you know, sudden shocks in macro, independently of the next

618
00:36:29,800 --> 00:36:33,319
Speaker 2: election cycle, et cetera. So what I'm worried about the most.

619
00:36:33,400 --> 00:36:36,759
Speaker 2: What I'm worried about the most is you know, maintaining

620
00:36:36,800 --> 00:36:40,439
Speaker 2: a strong team, as we have over the last seven

621
00:36:40,520 --> 00:36:46,840
Speaker 2: years at Northwall, finding good opportunities, continuing to deliver really

622
00:36:46,880 --> 00:36:51,160
Speaker 2: strong solutions to our counterparties that they can rely on,

623
00:36:51,560 --> 00:36:55,440
Speaker 2: and delivering to our LPs, you know, not just returns,

624
00:36:55,480 --> 00:37:00,200
Speaker 2: but also transparency, good communication, and a good relationship so

625
00:37:00,239 --> 00:37:05,319
Speaker 2: that this ecosystem of team counterparties LPs is in a

626
00:37:05,360 --> 00:37:05,840
Speaker 2: good place.

627
00:37:07,280 --> 00:37:10,760
Speaker 3: We talked a little bit earlier about you know, investor protection,

628
00:37:11,040 --> 00:37:16,719
Speaker 3: making sure that you have enough equity coverage or backing

629
00:37:17,200 --> 00:37:22,920
Speaker 3: or cushion if you prefer. But is that possible when

630
00:37:22,960 --> 00:37:29,400
Speaker 3: you're aiming for relatively high returns and are you necessarily

631
00:37:29,400 --> 00:37:33,120
Speaker 3: looking just at the senior part of the capital structure

632
00:37:33,760 --> 00:37:36,719
Speaker 3: for some of these companies or are you prepared to

633
00:37:38,040 --> 00:37:41,239
Speaker 3: take more risk basically to get those return figures that

634
00:37:41,320 --> 00:37:42,880
Speaker 3: you mentioned.

635
00:37:43,719 --> 00:37:46,640
Speaker 2: So we are certainly very happy to drop down into

636
00:37:47,040 --> 00:37:50,120
Speaker 2: a second lean position in a capital structure, provided that

637
00:37:50,160 --> 00:37:53,040
Speaker 2: we subordinate ourselves to you know, what we call the

638
00:37:53,120 --> 00:37:57,239
Speaker 2: benign syndicative lenders, so you know, commercial lending banks you know,

639
00:37:57,320 --> 00:38:00,200
Speaker 2: and not you know, aggressive hedge funds for example point

640
00:38:00,280 --> 00:38:03,799
Speaker 2: number one. Secondly, you know when we drop in a

641
00:38:03,840 --> 00:38:06,640
Speaker 2: second lean, such as the situation with the German industrial

642
00:38:06,640 --> 00:38:09,680
Speaker 2: services business I described earlier. When we do drop into

643
00:38:09,719 --> 00:38:12,200
Speaker 2: a second lean, you know, what we want to do

644
00:38:12,280 --> 00:38:16,160
Speaker 2: is make sure that you know, we are well covered

645
00:38:16,880 --> 00:38:19,960
Speaker 2: and we detach at you know, where only two or

646
00:38:19,960 --> 00:38:23,360
Speaker 2: three years ago probably a banking syndicate would have detached.

647
00:38:23,440 --> 00:38:25,799
Speaker 2: So you know, we look to detach somewhere between four

648
00:38:25,880 --> 00:38:28,040
Speaker 2: four and a half five times, not somewhere between eight

649
00:38:28,080 --> 00:38:31,000
Speaker 2: and twelve times EBITDA, So that gives us, you know,

650
00:38:31,400 --> 00:38:33,600
Speaker 2: a good amount of dwanced protection. You know, maybe that

651
00:38:33,640 --> 00:38:36,160
Speaker 2: business is not worth eight times, maybe it's worth six times,

652
00:38:36,160 --> 00:38:38,319
Speaker 2: but if we detach it four times, you know, we

653
00:38:38,360 --> 00:38:40,160
Speaker 2: are We're comfortable.

654
00:38:41,200 --> 00:38:43,759
Speaker 1: When you look at European middle market private credit right now,

655
00:38:44,000 --> 00:38:46,040
Speaker 1: where are you saying stress? Is it in the payment

656
00:38:46,160 --> 00:38:49,480
Speaker 1: in kind? You know, the pick deals? Is it covenant breaches?

657
00:38:50,080 --> 00:38:53,160
Speaker 1: Are there any signs of you know, more defaults coming?

658
00:38:54,520 --> 00:38:57,400
Speaker 2: You know, I think obviously the market is doing whatever

659
00:38:57,440 --> 00:39:01,080
Speaker 2: it can to avoid defaults, and you know, obviously private

660
00:39:01,080 --> 00:39:04,560
Speaker 2: credit firms you know, have an incentive to you know,

661
00:39:04,680 --> 00:39:07,640
Speaker 2: work with their borers to try and restructure these situations.

662
00:39:08,920 --> 00:39:14,400
Speaker 2: And so we are seeing obviously in increased use of PICK,

663
00:39:15,000 --> 00:39:18,680
Speaker 2: which I think in and of itself isn't necessarily a

664
00:39:18,719 --> 00:39:22,440
Speaker 2: problem provided it is, you know, there as part of

665
00:39:22,480 --> 00:39:25,520
Speaker 2: a new funding solution, and not to sweep a problem

666
00:39:25,640 --> 00:39:28,040
Speaker 2: under the rug. The way that we look at PICK

667
00:39:28,440 --> 00:39:32,440
Speaker 2: is that it helps us get to our required return.

668
00:39:32,640 --> 00:39:34,879
Speaker 2: You know, we ask companies to pay as much cash

669
00:39:34,880 --> 00:39:37,080
Speaker 2: as they can. The remainder to our required return we

670
00:39:37,120 --> 00:39:38,720
Speaker 2: are very happy to take in the form of PICK.

671
00:39:39,040 --> 00:39:41,760
Speaker 2: And here again what we're then doing is really eating

672
00:39:42,239 --> 00:39:45,440
Speaker 2: over time into the potential returns that the equity, the

673
00:39:45,440 --> 00:39:47,719
Speaker 2: private equity firm or the equity holders could generate in

674
00:39:47,719 --> 00:39:51,319
Speaker 2: the transaction. So actually, what I'm more worried about is,

675
00:39:51,600 --> 00:39:53,879
Speaker 2: you know, what one should be more worried about is

676
00:39:54,000 --> 00:39:56,240
Speaker 2: what is happening to the returns of the private equity

677
00:39:56,239 --> 00:39:59,040
Speaker 2: firms in these situations, you know, rather than what's happening

678
00:39:59,120 --> 00:40:03,080
Speaker 2: to the returns you know at our level of the

679
00:40:03,120 --> 00:40:06,879
Speaker 2: private credit firm. Obviously you can pick into nowhere, right,

680
00:40:06,920 --> 00:40:10,239
Speaker 2: So you've got to make sure that you have covenants

681
00:40:10,360 --> 00:40:13,800
Speaker 2: that also capture this pick element, so that if leverage

682
00:40:13,840 --> 00:40:17,080
Speaker 2: gets to an unsustainable level, you then can get to

683
00:40:17,120 --> 00:40:19,440
Speaker 2: a point where you can have a conversation about the

684
00:40:19,480 --> 00:40:22,520
Speaker 2: potential refinancing with the counterparty.

685
00:40:23,440 --> 00:40:27,560
Speaker 3: Obviously, pick notes have got their fair fair share of

686
00:40:27,600 --> 00:40:31,399
Speaker 3: attention recently, and you mentioned something very crucial there, which

687
00:40:31,400 --> 00:40:36,480
Speaker 3: is obviously you can't pick into nowhere. My question then

688
00:40:36,480 --> 00:40:40,120
Speaker 3: would be how do you draw the line then? Because

689
00:40:41,160 --> 00:40:44,400
Speaker 3: you said leverage getting to an unsustainable level, do you

690
00:40:44,480 --> 00:40:48,399
Speaker 3: have in your mind a level that is sustainable sort

691
00:40:48,400 --> 00:40:51,279
Speaker 3: of across the board for all sectors or is it

692
00:40:51,320 --> 00:40:53,280
Speaker 3: more on a case by case basis. I know earlier

693
00:40:53,360 --> 00:40:56,600
Speaker 3: you mentioned sort of high single digit net debt to

694
00:40:56,680 --> 00:40:59,520
Speaker 3: ebit not being where you want to be. Is that

695
00:40:59,600 --> 00:41:02,400
Speaker 3: what you're thinking about or are there other metrics, leverage

696
00:41:02,400 --> 00:41:04,120
Speaker 3: metrics that you're thinking about?

697
00:41:04,920 --> 00:41:07,680
Speaker 2: Again, it depends. I was talking about an industrial services business,

698
00:41:07,760 --> 00:41:10,239
Speaker 2: right Dolu, which has you know, very different valuation to

699
00:41:10,600 --> 00:41:14,799
Speaker 2: potentially you know, you know, a SaaS business. So you know,

700
00:41:14,880 --> 00:41:19,719
Speaker 2: it is very much industry specific it is, and there

701
00:41:19,760 --> 00:41:22,240
Speaker 2: is no right or wrong answer. Right, this is where

702
00:41:22,600 --> 00:41:24,960
Speaker 2: you know, it comes down to our underwriting and our

703
00:41:25,040 --> 00:41:29,840
Speaker 2: valuation of these businesses. I think the difference that you

704
00:41:29,960 --> 00:41:32,680
Speaker 2: might see to some of the more broadly syndicated you

705
00:41:32,719 --> 00:41:36,160
Speaker 2: know or the larger hold Coepick notes is that you know,

706
00:41:36,200 --> 00:41:38,759
Speaker 2: in many of those situations, those companies already have a

707
00:41:38,800 --> 00:41:40,919
Speaker 2: first ever revolver or they have a first lean that there

708
00:41:40,920 --> 00:41:43,439
Speaker 2: is secondly in a piece of paper, and you're now

709
00:41:43,600 --> 00:41:48,040
Speaker 2: kind of really in replacement equity territory because these larger

710
00:41:48,080 --> 00:41:50,440
Speaker 2: companies have access to the capital markets. The companies that

711
00:41:50,440 --> 00:41:53,960
Speaker 2: we look at don't necessarily have access to the capital markets.

712
00:41:54,120 --> 00:41:56,919
Speaker 2: So yes, they should have a slightly law evaluation because

713
00:41:56,920 --> 00:42:00,520
Speaker 2: of lower liquidity. Maybe they're smaller players within certain industries,

714
00:42:00,719 --> 00:42:03,120
Speaker 2: but certainly, you know, we can take advantage of the

715
00:42:03,160 --> 00:42:06,160
Speaker 2: fact that you know, other than potentially banking syndicate, there's

716
00:42:06,239 --> 00:42:08,920
Speaker 2: unlikely to be another lender in the capital structure.

717
00:42:09,600 --> 00:42:12,920
Speaker 1: So what's next for north Well Fabian? Where do you

718
00:42:12,960 --> 00:42:15,040
Speaker 1: go from here? Is there one big opportunity that you

719
00:42:15,040 --> 00:42:17,719
Speaker 1: would pinpoint, Is there a I don't know, a new

720
00:42:17,800 --> 00:42:20,600
Speaker 1: a new fundraising strategy. Is there a new York office

721
00:42:21,040 --> 00:42:22,880
Speaker 1: opening on the horizon? What's next for you?

722
00:42:23,560 --> 00:42:25,640
Speaker 2: So there's a few things. So we talked a lot

723
00:42:25,880 --> 00:42:30,200
Speaker 2: here today about our private credit capital solutions business. Also

724
00:42:30,239 --> 00:42:34,120
Speaker 2: part of our credit opportunities funds, you know, is the

725
00:42:34,120 --> 00:42:38,560
Speaker 2: provision of liquidity to counter parties that you know require capital,

726
00:42:39,480 --> 00:42:41,760
Speaker 2: you know, in different formats. So we've been, for example,

727
00:42:41,920 --> 00:42:47,160
Speaker 2: very active in acquiring well seasoned unsecured consumer loan portfolios

728
00:42:48,400 --> 00:42:54,919
Speaker 2: from some of these European European servicers that have become

729
00:42:54,960 --> 00:42:58,760
Speaker 2: asset owners, and that's certainly a trend that we expect

730
00:42:58,760 --> 00:43:01,560
Speaker 2: to continue. We see a lot of deal flow in

731
00:43:01,719 --> 00:43:04,200
Speaker 2: in in that portfolio space and have a dedicated team

732
00:43:04,560 --> 00:43:08,239
Speaker 2: going after that opportunity. At the moment we talked about

733
00:43:08,320 --> 00:43:13,000
Speaker 2: legal assets. Legal assets is something that you know, we

734
00:43:13,040 --> 00:43:16,279
Speaker 2: continue to be excited about and continue to see deal

735
00:43:16,320 --> 00:43:19,640
Speaker 2: flow both in Europe and actually have a team member

736
00:43:20,040 --> 00:43:24,520
Speaker 2: here in the US spending more time on trying to

737
00:43:24,560 --> 00:43:28,359
Speaker 2: find some US opportunities, you know. And then finally, in

738
00:43:28,440 --> 00:43:31,280
Speaker 2: many of the situations where we do provide second in capital,

739
00:43:32,080 --> 00:43:35,400
Speaker 2: we are often also presented with the opportunity to participate

740
00:43:35,719 --> 00:43:38,840
Speaker 2: in a very attractively priced first glean. So you know,

741
00:43:38,880 --> 00:43:42,080
Speaker 2: we are spending more and more time in looking at

742
00:43:42,280 --> 00:43:45,560
Speaker 2: kind of some more more plain vanilla call it senior lending,

743
00:43:46,239 --> 00:43:51,480
Speaker 2: senior lending opportunities. When it comes to the our US presence,

744
00:43:51,880 --> 00:43:54,920
Speaker 2: as I alluded to before, there is a lot of

745
00:43:55,600 --> 00:44:01,000
Speaker 2: very smart, very flexible LP capital in the US, and

746
00:44:01,040 --> 00:44:03,360
Speaker 2: we always try to be closer to our investors, and

747
00:44:03,480 --> 00:44:06,960
Speaker 2: if that means having a presence in the US, we

748
00:44:07,480 --> 00:44:08,759
Speaker 2: certainly would be very open to it.

749
00:44:09,480 --> 00:44:12,880
Speaker 1: Great stuff, Fabian Crobog, Chief investment Officer and founder of

750
00:44:12,920 --> 00:44:14,640
Speaker 1: Northwall Capital. It's been a pleasure having you on the

751
00:44:14,640 --> 00:44:15,320
Speaker 1: credit edge.

752
00:44:15,760 --> 00:44:18,560
Speaker 2: Thank you, nice to nice to be here, and thanks Toller.

753
00:44:18,520 --> 00:44:20,560
Speaker 1: And of course I'm very grateful to Tollu Ala Mutu

754
00:44:20,560 --> 00:44:22,560
Speaker 1: from Bloomberg Intelligence. Thank you for joining us today.

755
00:44:22,719 --> 00:44:25,160
Speaker 3: Thank you. Always happy to be here for.

756
00:44:25,160 --> 00:44:29,160
Speaker 1: More credit market analysis and real estate sector insight. Read

757
00:44:29,200 --> 00:44:32,560
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758
00:44:32,760 --> 00:44:35,279
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00:44:35,360 --> 00:44:38,800
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762
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766
00:44:57,920 --> 00:45:01,560
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767
00:45:01,560 --> 00:45:03,560
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768
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