Sundaram Alternates Emerging Corporate Credit Opportunities Fund (ECCO) – CARE AIF 1

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About Company

Sundaram Alternates (SA) aims to develop solutions for your objectives. To offer your money the advantage it requires, the tactics are based on cutting-edge business practices, reliable operational models, data-backed research, and openness. They are a group of highly driven individuals with over 30 years of expertise and experience in managing funds across various financial sectors. They would be happy to advise you on how to choose assets more wisely. Join us in investing and starting your road to what truly matters. Sundaram Asset Management Company Limited’s subsidiary, Sundaram Alternate Assets Ltd., serves high net worth individuals’ investing needs (HNIs). The divisions that fall under the SA umbrella are Sundaram Portfolio Managers (SPM) and Sundaram Alternative Investment Funds (AIFs).

Fund Snapshot

 Inception: 2022
Fund Type: Close-Ended Category II AIF
Target Size : INR 500 Crores / USD 67 million
Trustee / Sponsor: Sundaram Trustee Company / Sundaram Finance
Sponsor Commitment: Upto ~20% of the Fund Size
Term of the Fund: 6 years (extendable by up to 2 years with the approval of two–thirds majority of investors by value)
NAV Frequency: Quarterly
Investment Horizon: 2-6 Years
Number of Stocks: 12-15
Capital repayments: During years 4-6

Deal type | Indicative Opportunities

The fund may access a wide range of credit possibilities thanks to secured financing across varied industries, which helps it generate a gross portfolio IRR of between 16% and 18%.

Strategy

  • Company in Operation Needs (current business structure supported by operating cash flows) Capital needed for PE/JV partner buyouts and growth equity
  • Event Finance (opportunistic asset-backed ring-fenced agreements, rescue funding for asset revitalization/preservation, etc.) bridge to IPO/Last Mile Financing
  • Deals backed by hard assets include those involving hotels, hospitals, educational institutions, infrastructure financial inclusion, and NBFCs.

Indicative Deal Structure

  • Self-liquidating, secured, 4-5 year tenor, current yield (quarterly cash coupons), and high inclination for refinancing after 24 to 36 months
  • The secured transaction with a three to four-year maturity, a 10% +/- 2% cash coupon, and the remainder of the return paid as a redemption premium. Refinancing withdrawal, liquidity event, and merger with an operational company
  • A secured transaction with a tenor of two to three years, a cash coupon of ten percent plus or minus two percent, and the remainder of the yield paid as a redemption premium.
  • 4-5-year tenor, current yield (quarterly cash coupons), secured with 1.25x-1.50x hard asset cover, self-liquidating transactions with a high inclination for refinancing after 24-36 months 
  • Tenors of 3 to 6 years, current return, substantial capital buffers, Investee firms’ established business models

Portfolio Construction | Focus & characteristics

  • Delivery of cash coupons on a quarterly basis after fees and costs
  • Repayments of principal will be invested during the investment term.
  • Investors will receive quarterly income and principal repayments received after the investment period, if not on an earlier date.

Target pre-tax return to investors at ~ 13%-14%*, Capital distributions after 4th year

Portfolio composition

Number of investments

12-15 investments over the fund life

Portfolio concentration

  • Single investment limit – 10-15%
  • Single industry concentration – 25%
  • Additional 5% concentration cap in one-off circumstances with higher approval standards
  • To optimize portfolio returns, strike a balance between short-term rapid churn and HTM.

Investment size

  • INR 50-75 Crs per deal
  • Focus on repeat business (subject to SBL)

Investment tenor

  • 3-5 years with a periodic repayment
  • Amortizing structures (i.e., lower duration)
  • Repayments within fund life with a 6-month tail period.

Sectors / Geography

    • Focus on ‘core sectors’ with group synergies
    • Development’ focus on MSME/SME, Financial Inclusion & CESG Impact

Primary focus on South; selective Maharashtra & Gujarat

Philosophy & approach

Key Investment Characteristics 

Regular coupon with principal amortization

  • Senior secured debt that has at least 1.5 times the amount of cover in operational level or sponsor level security.
  • A 1.5x minimum cash flow cover over the investment’s lifetime.
  • A balanced trade-off between security and cashflow cover may be advised on a case-by-case basis.

Borrower Analysis

A thorough examination of the borrower’s business strategy, company history, major products, growth factors, working capital cycles, important clients, significant rivals, capital structure, and leverage.

Sponsor Analysis

Group analysis of the sponsor. Performance of other group companies, financial and operational relationships, sponsor assets, and responsibilities

Industry Analysis

Thorough research must be done to comprehend the industry’s history, growth-affecting variables, government laws (if any), major players, industry size, notable trends over the past few years, demand and supply drivers, and any other important aspects that have a substantial influence on the sector.

Character and quality of management and/or equity sponsors

  • Experience with promoters/key executives/management, succession plans for key positions, and planning and control systems assessment.
  • Strict adherence to all applicable compliance & regulatory best practices, including ALM, ESG, etc.

Cash Flow Projections and Scenario Analysis

  • To determine debt magnitude and loan serviceability, project the borrower’s base case and worst-case cash flows throughout the loan tenure.
  • Recognize important risks to the assumptions, anticipate cash flows based on company/industry research, and create financial profit and loss, balance sheet, and cash flow statements for the borrower. In addition, determine critical ratios.

Collateral Analysis

  • A thorough grasp of the security or collateral, including its qualities, enforceability, recoverability, and value.
  • Legally and practically, collateral security or property must be sufficient and enforceable.

Unique Feature

Investment Commitment

  • Committed ~15-20% as a sponsor to every private credit fund
  • Investments from groups that bring substantial synergies to the private credit funds

Management Commitment

  • Strong accountability & supervision are driven by senior group management’s active participation in the investment committee.
  • Group resources aid pre-investment due diligence and post-disbursement monitoring.

Systems & Process focus-Integral to Sponsor’s credit philosophy

  • The Sponsor’s idea of credit as the major emphasis will serve as the basis for ECCO’s credit strategy.
  • Consistent cash flow to investors and current yield Strong cash controls and governance.

Geographical presence – Synergy

The group’s key markets are in the south, and a strong regional presence provides local expertise.

Group tactical positioning

  • Strengthened diligence skills and sourcing synergies due to large customer base and stakeholder reach
  • Access to functional and domain expertise
  • In-house fund-raising capabilities

Each investment diligence support supported by:

  • Reputed legal counsel
  • Independent valuations for collateral valuation
  • Financial Diligence by credible advisory firms
  • Technical diligence wherever required by experts

Distinction

  • Quarterly coupons 
  • Principal repayments received post-investment period to be returned to investors
  • Capital distribution post 4th year subject to portfolio managers’ views
  • The Fund will have 12-15 investments not exceeding 15% per transaction & 25% in a single industry with permissible 5% additional allocations subject to investment committee approvals
  • Investments of ₹ 50-70 Cr per transaction
  • The geographical presence will be within South, Maharashtra & Gujarat

It offers portfolio diversification

  • Auto & Engineering
  • Chemicals / Pharma
  • Textiles
  • Consumer & FMCG
  • Healthcare
  • Logistics
  • IT
  • Hospitality

The credit model reflects Sundaram’s conservativeness

  • Matrix model devised for credit investments that combine risk, pricing, UW rules & asset monitoring practices
  • Unanimous IC recommendation – consensus approach
  • Process-driven approach – fact-based decisions
  • No inter-fund conflicts

Active oversight by the IC

  • Investment Team operates within parameters – institutionalized business
  • Pre-agreed UW policy – control over portfolio quality

About Fund Manager

For Sundaram Alternates, Karthik B. Athreya is in charge of the alternative financing strategy. He has almost 22 years of expertise in corporate finance, investment banking, and principal investing. He established Altico Capital and oversaw Clearwater Capital’s India division. He worked at Rabo, Arthur Andersson, and PWC before becoming a founding employee of Yes Bank.

Karthik is a certified public accountant and a Loyola College alumnus. Worked for a number of reputable organizations, including Clearwater Capital Partners (A pan Asia PE fund), Yes Bank, Rabobank, Arthur Andersen, and PwC. In each of his jobs, he contributed to the creation of successful enterprises and large-scale operations.

Sundaram Alternate Assets Limited has hired KARTHIK ATHREYA with the goal of developing a scalable alternative fixed income fund business, commencing with the Sundaram AIF Cat II Fund that focuses on investing in high-yield prospects.

Professional Life

  • Since 2006, I have worked across business cycles as an investor in special circumstances and structured finance. I have managed portfolios through global volatility and local macro events and am knowledgeable about enforcement in Indian judicial systems.
  • Led the team that completed more than 550 million USD in offshore credit agreements (at 16% US$ IRRs) and onshore credit.
  • Conceived and started from scratch a USD 400 million RE credit NBFC at Altico Capital. He created a transaction pipeline worth more than $2 billion for all of India, and when he left in the first quarter of 2016, the portfolio produced 21% YTM growth with no defaults.
  • Over the course of a decade, he managed, exited, and/or resolved an AUM of about USD 750 million using NBFC and Fund structures.

Chandan Kumar is in charge of overseeing the investments made by the fund and making sure that its strategy is in line with its objectives. Chandan is a financial services expert with 12 years of experience in corporate banking, investment banking, and credit research and structuring. He has experience at Yes Bank Limited and InCred Capital.

Professional Life

  • Chandan worked with InCred Capital prior to his present position. He has been connected to the business ever since it began. His responsibilities included credit analysis and loan structuring for NBFCs and small to medium businesses. He then worked on debt advising assignments for a variety of corporate clients.
  • Prior to joining InCred Capital, he spent eight years working for Yes Bank Limited in the structured and project finance division, where he was in charge of overseeing the end-to-end management of credit proposals for the mid-sized and big corporate market.
  • significant expertise in managing the exits of loans and investments, doing due diligence, and underwriting
  • Worked throughout investment cycles and oversaw a number of portfolio exits 
  • Experience in the structured credit arena spanning industries and product categories (mezzanine, structured debt, project finance, acquisition finance, off-balance sheet financing, etc.) both big and midsized corporate segments

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Disclaimer: Investing Involves Risk. This document is for information purposes only and should not be viewed as a legal offering document or solicitation. Offers to invest in this fund are made only by the Discretionary Portfolio Management Services Agreement. Past performance does not guarantee future results and there is no assurance that the managed accounts will necessarily achieve their objectives. We do not guarantee any returns in the hand of investors not we take any sort of accountability for the performance of the scheme. The above-mentioned data is collected from the respected Fund house please verify the same at SEBI website.