Let’s say you are the average company selling widgets and earning US$5 million to US$25 million and you want to expand your operations. Traditionally, you could go to the bank and negotiate a loan based on your collateral. If you happened to be a company that grew without owning a great deal of real estate or other collateral, the banker might struggle to put together a deal for you. Although it could happen.
Now, the guys at Sygnus, that is Ike Johnson, Chief Operating Officer, Beresford Grey, CEO; Jason Morris, Chief Investment Officer and , decided after working in traditional banking for a few years, that there is another way. Taking the model from North American companies like Blackrock and PIMCO, the Sygnus team offered another way for companies to expand without traditional collateral.
So let’s go back to the widget seller.
What Sygnus would do, for example, would be to look at the revenues and receivables and say, let’s use this as the basis for a loan. Additionally, Sygnus would review the tax efficiency of said company which could unlock further revenue and allow for the structuring of debt in even more unique ways.
According to research in the North American market, when considering private credit, 77% of institutional investors agreed that the most important factor in the decision-making process is the track record of the manager.
Top credit managers have advantages in the form enhanced deal flow as well as in pricing and covenants which can help generate additional value for investors. Welcome to the secret sauce known as private credit. “Private credit is the fastest growing segment in the investment banking field right now. In Jamaica, the only two companies doing this is ourselves and Epply. However, with Sygnus you get two sources of investment opportunity for the price of one. That is you get the non-traditional investment opportunity and the non-traditional credit opportunity,” explained Jason Morris, at a recently held breakfast meeting at the Terra Nova Hotel.
So why is private credit gaining traction in Jamaica and globally with investors? According to Bloomberg magazine, “One word: yield. A decade of central bank stimulus caused it to evaporate in the usual places, such as the debt of blue-chip corporations. If everything goes according to plan, loans from private lenders are usually more lucrative than those to bigger companies. They hold out all-in yields of 7 percent to 9 percent, sometimes much more. That compares to an average 4.3 percent for the typical investment-grade corporate bond.”
Beresford Grey noted that “Our focus is the medium-sized sector as large companies tend to use traditional financing.” And when pressed for the specific ingredients in the secret sauce of private equity, Grey demurred saying, “I am a very good chef and so I won’t divulge my secrets.” Yet, Grey did say that Syngus will work with most industries except hospitality as it is too large and agriculture as it still needs work to develop its insurance model to protect investors.
