Snapshots is following the news coming out of the US involving the president, his lawyer and a porn star. A talented scriptwriter would struggle to come up with a story as headline grabbing as this. It also makes the Netflix hit presidential drama House of Cards seem timid and boring in retrospect. What is clear is that any potential impeachment and removal from office will be a complicated political process involving the US Congress.

Speciality Finance
Speaking of movies, we were pleased to close our first media receivables financing trade last night. The production and distribution of media is a growing business because of the arrival of streaming giants such as Netflix and Amazon who have huge appetites for content.  It is also a capital-intensive business.

Media is a subset of the Speciality Finance market which itself is a subset of the emerging Private Debt market in Europe. Speciality Finance is growing because of the new capital regime for banks.  This requires banks to calculate PD (Probabilities of Default) and LGD (Loss Given Default) against their assets. Niche asset classes often have limited data and/or do not easily conform to these capital models making banks reluctant to lend.  However, we believe the risk in these assets can be analysed, assessed, isolated and transformed into credit risk.

We are finding an increasing number of opportunities in areas as diverse as media, ground rent and non-conforming mortgages.  We are particularly interested when we can remove the performance risk of the asset and transform it into credit risk through structuring around the borrower, its supply chain, collateral, indemnities and insurance.  This is not an easy process.  It requires a large origination channel, asset and cash flow modelling, structuring, internal and external counsel and tense negotiations with the borrower.  The process from origination to investment committee is long with a large percentage of deals failing at any of the interim steps.  The payoff for this hard work is generous credit spreads.

Speciality Finance is a new and growing market in Europe but it has a long history in the US. This is because Europe was traditionally a large bank lending market and a smaller and fragmented capital market. The new capital regime is changing things fast in Europe.  We are excited by this opportunity and are positioning ourselves accordingly.

Good luck.

Asif Godall
Co-Chief Investment Officer