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

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

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

• 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

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

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.