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The Case For Private Lending

Next Edge Capital Corp., October 2016

IMPORTANT NOTES
The Next Edge Private Debt Fundor the Fund means the Next Edge Private Debt Fund.
Capitalized terms not defined in this presentation are defined as set forth in the Offering Memorandum of the Fund (the OM).
This communication is not, and under no circumstances is to be construed as, an invitation to make an investment in the Fund nor does it
constitute a public offering to sell the Fund or any other products described herein. Applications for the Fund will only be considered on the
terms of the OM. The OM contains important detailed information about the Fund. Copies of the OM may be obtained from Next Edge
Capital Corp., the principal distributor of the Fund. Each purchaser of the units of the Fund (the Units) may have statutory or contractual
rights of action under certain circumstances as disclosed in the OM. Please review the provisions of the applicable securities legislation for
particulars of these rights. Terms defined herein shall have the same meaning as in the OM. Potential investors should note that alternative
investments can involve significant risks and the value of an investment may go down as well as up.
There is no guarantee of trading performance and past or projected performance is not indicative of future results.
Investors should review the OM in its entirety for a complete description of the Fund, its risks, and consult their registered
dealers before making an investment.
The information contained in this material is subject to change without notice and Next Edge Capital Corp. will not be held liable for any
inaccuracies or misprints.

Any descriptions or information involving investment process or strategies is provided for illustration purposes only, may not be fully
indicative of any present or future investments, may be changed at the discretion of the Investment Manager and are not intended to reflect
performance.
The Fund has not been, and will not be, registered under the United States Securities Act of 1933, as amended, or any State securities
laws. The Fund may not be offered or sold in the United States or to US persons.

Cautionary Note Regarding Forward-Looking Statements


The following presentation may contain forward-looking statements. All statements, other than statements of historical fact, that address
activities, events or developments that Next Edge Capital Corp., the Credit Advisor or any affiliates thereof (the Companies) believe,
expect or anticipate will or may occur in the future (including, without limitation, statements regarding any targeted returns, projections,
forecasts, statements and future plans and objectives of the Companies) are forward-looking statements. These forward-looking statements
reflect the current expectations, assumptions or beliefs of the Companies based on information currently available to the Companies.
Forward-looking statements are subject to a number of risks and uncertainties that may cause the actual results of the Companies to differ
materially from those discussed in the forward-looking statements, and even if such actual results are realized or substantially realized,
there can be no assurance that they will have the expected consequences to, or effects on, the Companies.
Factors that could cause actual results or events to differ materially from current expectations include, among other things, changes in
international financial and commodities markets, fluctuations in currency exchange and interest rates, illiquidity of portfolio investments,
reduction in availability of leverage, default by counterparties, special risks arising from short sales and investments in forward contracts
and other derivatives, unintentional trades, accuracy of analytical models, valuation risks, limitations on redemptions, tax consequences,
changes in applicable laws and other risks associated with investing in securities and those factors discussed under the section entitled
Risk Factors in the Prospectus.
Any forward-looking statement speaks only as of the date on which it is made and, except as may be required by applicable securities laws,
the Companies disclaim any intent or obligation to update any forward-looking statement, whether as a result of new information, future
events or results or otherwise. Although the Companies believe that the assumptions inherent in the forward-looking statements are
reasonable, forward-looking statements are not guarantees of future performance and accordingly undue reliance should not be put on
such statements due to the inherent uncertainty therein.

Risks of Investing In The Fund


Please see the Funds OM for a complete listing and description of the risks associated with an investment in the Fund.

Risks Associated With An Investment In The Partnership


General Investment Risk; No Guaranteed Return; Limited Operating History; Class Risk; No Advice to Investors; Illiquidity of Units or Limited
Liquidity; Potential Conflicts of Interest; Reliance on the Manager and Credit Managers; Capital Depletion Risk; Fees and Expenses of the
Partnership; Risks Arising from Multiple Classes of Units; Changes in Applicable Law; Changes to Canadian Tax Laws and Challenges by
the CRA; Achievement of the Investment Objective; Changes in Investment Strategies; Illiquid Positions; Not a Public Mutual Fund;
Distributions; Possible Effect of Redemptions; Possible Loss of Limited Liability; Possible Negative Impact of Regulation; Potential
Indemnification Obligations; Reliance on Manager and Track Record; Currency Risk; Initial Investment in the Partnership; Legal; Tax
Liability; Units are not Insured and Strategies.

Risks Associated With The Underlying Investments & Strategies


Availability of investments; Counterparty and Settlement Risk; Credit Risk; Custody Risk and Broker or Dealer Insolvency; Debt Securities;
Diversification; Valuation of the Partnership's Investments; General Litigation Risk; Uninsured and Underinsured Losses; Equity Risk;
Exchange Traded Funds; Failure to Meet Commitments; Foreign Investment Risk; General Economic and Market Conditions; Highly Volatile
Markets; Interest Rate Changes; Investment and Trading Risks in General; IssuerSpecific Changes; Knowledge and Expertise of the Credit
Managers; Leverage; Limited Sources of Borrowing; Liquidity Risk; Credit Manager Insolvency; Nature of the Investments; Options; Portfolio
Turnover; Shorting; Use of Derivatives and Composition of Investments.

Private Lending: The Opportunity


Private Lending: An Attractive Fixed Income Solution
Interest Rates are low, however many investors require higher yielding
investments without assuming unnecessary risk.
Private Lending provides an attractive solution for investors seeking
reliable returns with safety of principal.

What is Private Lending?


Private Lending can be broadly defined as privately negotiated loans that take
place outside of the traditional banking network.

What is Private Lending?


Private Lending can be broadly defined as privately negotiated loans to companies or individuals that takes place
outside the traditional banking and government systems. These loans tend to have an illiquid profile as they do not
trade.
Typically small and mid sized (SME) companies who, because of size, have limited access to liquid capital
markets, finance their business through Private Lending.

Maturities, regions and borrower types can vary, leading to idiosyncratic return drivers and better diversity.
Quite often these niche strategies lead to an uncorrelated return profile relative to liquid credit strategies.

Types of Private Lending


Asset Based
Lending

Direct
Lending

Specialty
Finance

Distressed
Debt

Senior
Secured
Loans

Supply Chain
Financing

Mezzanine
Debt

Private
Mortgage
Lending

Next Edge Capital focuses on certain areas within the Private Lending Asset Class
1. Please see page 14 for definitions of Private Debt types.

Private Lending: The Opportunity


Benefits of Private Lending Investing

Strong return and cash flow characteristics relative to other fixed income
vehicles

Solid focus on preservation of capital

Lower leverage ratios, greater asset coverage and stronger covenant than
more liquid loan market

Market inefficiencies translate into higher yields for investors

Low correlation to equity and bond markets

Private loans, not market priced (minimal market volatility as compared to


public equities and bonds)

Illiquidity Premium for those investors that do not need the immediate liquidity
of public markets, a premium is typically provided

Private Lending: The Opportunity

Alternative Credit should play a pivotal role in client portfolios, but instead tends to be
underexploited, both in terms of asset allocation and the implementation of options
created. Notably, alternative credit can play a role in helping to reduce the reliance on
the equity premium to drive investment returns and as such help to improve investment
efficiency and portfolio robustness.
- Towers Watson Alternative Credit Report, September 2015
Source: Preqin Private Debt Online 2015

Private Lending: The Opportunity


Private Lending or non-bank lending is not a new concept, however, exceptional
opportunities are being created via major structural changes within the financial services
industry:
Regulation
New regulations (such as Basel III, Dodd Frank) have forced banks into scaling back their lending
activities to small and medium sized businesses and consumers, creating a new unserved market to
investors. This provides an opportunity for alternative lenders to fill the funding gap and attain a
attractive return potential

Changing Demographics
The general population of the developed world has welcomed a digital lifestyle. Specialty finance
lenders (online lenders) offer simplicity, convenience and timely processing to the loan application
process aiding in their strong growth.

Technology
The use of advanced technology to automate credit analysis (or make more efficient) and processing,
drives down operating costs, aids in competitiveness and provides a convenient borrower experience.
Unlike traditional brick-and-mortar lenders, online specialty finance companies have low overhead,
attractive margins and scalability.

Private Lending: The Opportunity


Post 2008, regulatory changes have forced traditional banks to notably pull back their
lending activities. This has allowed new lenders to emerge and flourish in the alternative
lending space. The Private Lending market is estimated to be in excess of US $50 trillion in
size.
Lending to small
U.S. Commercial Loans Outstanding,
And % Small Business1

businesses continues to
compress and accounts
$1.2

commercial loans

$1.0
$0.8

outstanding1

$0.5
47%

40%

Loans below $1 million

31%
25%

2000

for only 25% of all

2005

Commerical Loans ($ Trillions)

2010

1Q15

% Small Business

are uneconomical for


banks to underwrite from
a cost and capital
efficiency standpoint

1. FDIC Quarterly Banking Profile (September 2015).

10

Significant Growth and Long-Term


Stability
$8.7

$4.5

Online lending companies are growing fast


creating a significant need for lending
capital to supply them

$2.2
$0.1

$0.1

2010A

$0.4

$0.8

$0.2

2011A

$0.5

$0.3

2012A
Consumer

2013A
SMB

2014A

Significantly Underpenetrated Markets Support Long-Term Sustainability


Total U.S. SMB Debt Outstanding
($ in Billions)2

$600
$500
$400
$300
$200
$100
$0
Bank Loans

Business
Credit
Cards

Equipment
Leasing

SBA

Factoring

MCA

Online
Alternatives

1. VPC estimates.
2. Harvard Business School The State of Small Business Lending (September 2014)

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Although online lenders have grown


significantly, they represent a small
segment of the debt universe and have
vast opportunity for future growth

Private Lending: The Opportunity


There exists an opportunity to gain attractive returns by providing loans to
these underserved areas of the market.
Through either:
1. Providing lending capital to established alternative
lending platforms;
2. Direct lending to small and middle market companies;

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Historical US Credit Card Yields


US Consumer Finance Yields Resilient Through Cycles
US Credit Card Net Yields1
20%
16%
12%
8%
4%
0%
1995

1997

1999

Net Yields

2001

2003

2005

Charge-offs

2007

2009

2011

2013

Average Net Yield

Using unsecured consumer credit cards as a proxy, net yields continued to


remain positive even during the depth of the credit crisis of 2008 / 2009

1. Federal Reserve.

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Types of Private Lending


Asset Backed
Lending

Direct Lending

Distressed Debt

Mezzanine
Debt

Privately negotiated loans to companies, special purpose vehicles or individuals secured by collateral
(assets). The loan, or line of credit, is secured by inventory, accounts receivable and/or other balancesheet assets.

Includes loans to private companies, privately placed debt of public companies, or loans backed by
real assets (real estate, infrastructure etc.).

Purchasing illiquid debt securities of firms that have already filed for bankruptcy or are likely to do so.

A hybrid of debt and equity financing that is typically used to finance the expansion of existing
companies. Mezzanine financing is basically debt capital that gives the lender the rights to convert to
an ownership or equity interest in the company if the loan is not paid back in time and in full.

Private
Mortgage
Lending

A private mortgage is one that is offered by an individual or a company who is not a mainstream or
alternative institutional lender.

Senior Secured
Loans

Senior bank loans are usually secured via a lien against the assets of the borrower. At the time the loan
is made, there typically tend to be no other existing liens on the borrower's assets, or at least not on any
of the assets being secured by the senior bank loan.

Specialty
Finance
Supply Chain
Financing

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Consumer or small business enterprise (SME) loans which are originated by non-bank lenders.

Supply chain finance allows a supplier to sell its invoices to a lender at a discount as soon as they are
approved by the buyer. That allows the buyer to pay later and the supplier to secure its money earlier.
Instead of relying on the creditworthiness of the supplier, the lender deals with the buyer usually a less
risky prospect.

Summary
Private
Loans not
Market
Priced
(Minimal
Volatility)
Strong Deal
Origination
Relationships
Across North
America

Low
Correlation
to Equity
and Bond
Markets

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Higher Yields
Relative to
Traditional
Fixed
Income
Investment

Benefits of
Private
Lending

Low Interest
Rate
Sensitivity

Attractive
Risk/Reward
Ratio

Strong and
Experienced
Manageme
nt Team

Focus on
Capital
Preservation

For more information please contact:


Next Edge Capital Corp.
1 Toronto Street, Suite 200
Toronto, ON
M5C 2V6
Local 416.775.3600
Toll Free 877.860.1080
info@nextedgecapital.com
www.nextedgecapital.com

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