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Next Edge Private Lending Presentation v1
Next Edge Private Lending Presentation v1
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.
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.
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.
Strong return and cash flow characteristics relative to other fixed income
vehicles
Lower leverage ratios, greater asset coverage and stronger covenant than
more liquid loan market
Illiquidity Premium for those investors that do not need the immediate liquidity
of public markets, a premium is typically provided
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
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.
businesses continues to
compress and accounts
$1.2
commercial loans
$1.0
$0.8
outstanding1
$0.5
47%
40%
31%
25%
2000
2005
2010
1Q15
% Small Business
10
$4.5
$2.2
$0.1
$0.1
2010A
$0.4
$0.8
$0.2
2011A
$0.5
$0.3
2012A
Consumer
2013A
SMB
2014A
$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)
11
12
1997
1999
Net Yields
2001
2003
2005
Charge-offs
2007
2009
2011
2013
1. Federal Reserve.
13
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
14
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
15
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
16