Our philosophy is driven by a few simple tenets: (i) distressed debt and special situations offer attractive opportunities; (ii) entering through the top end of the capital structure provides some level of downside protection; (iii) value can be created through active involvement in the company’s restructurings and operational improvements; (iv) the distressed debt and distressed-for-control markets are inefficient; and (v) the distressed market is global.
Distressed debt and special situations offer compelling investment opportunities for reasons such as restructuring complexities, underlying operational issues and forced selling by some debt holders. Having the wherewithal to successfully navigate these issues creates significant upside potential. Experience in restructurings and operations assists in calibrating risk better, protecting the downside further and generating upside faster.
SVP attempts to exert meaningful influence in the restructuring and post-restructuring activities of its investments. SVP expects to take active roles on ad hoc or formal creditors’ committees during restructurings, sit on boards, and deploy our operating partners as needed.
We believe the distressed debt market is inefficient. Debt does not trade on a central exchange, and the trading of bank debt in particular is even more opaque. A void exists at the nexus of distressed debt and equity control: few private equity firms (due to a lack of capabilities in sourcing distressed debt or bankruptcy expertise) or distressed hedge funds (due to little operational or private equity experience) have the necessary combination of skills to make successful distressed-for-control investments. These opportunities, complexities and inefficiencies are even more acute when the global market is considered because of the different restructuring laws, sourcing channels, skill-sets and infrastructure required.
SVP recognizes the increasing importance of environmental, social and corporate governance (ESG) matters and their contribution to the value of business today and we have adopted an ESG policy. We believe that the consideration of ESG practices is an important aspect of security analysis. In discerning the value of an enterprise through research and investment analysis, SVP takes into account ESG considerations along with other factors that may affect an issuer’s prospects.
SVP believes in investing in a broad range of distressed and deep value investments diversified by industry and geography. We will typically make investments at the top end of the capital structure (senior debt, or senior secured debt, typically private bank debt) at a substantial discount to par and what we believe is intrinsic value. The focus is on fundamentally sound businesses with characteristics such as leading market shares, high customer switching costs, hard assets, significant barriers to entry, and established franchises, but which are experiencing financial, managerial, or operational issues and are often undergoing, or about to undergo, a restructuring.