Cindy Delano, founder and chief executive officer of Invictus Global Management, sees an opportunity to lend to smaller, troubled companies that are outside the reach of larger funds and the Federal Reserve.
Delano, whose firm manages more than $89 million across distressed credit, litigation finance, bankruptcy and trade claims, spoke with Katherine Doherty on May 10. Comments have been edited and condensed.
How would you describe your approach to investing?
We look at the entire life cycle of a company undergoing distress. That typically spans event-driven distress, an upcoming maturity date or litigation liability that’s looming like opioids or mass torts, or an M&A event that’s about to h
appen. We also look at litigation finance in bankruptcy after we develop an understanding of how a case will play out. Those estate assets are often left behind or settled on the cheap.
With a lack of distressed credit, how do you put capital to work?
Our opportunity is grounded on the deep understanding of the legal intricacies of corporate bankruptcies. There is always some pocket of distress out there. We did not raise our fund expecting some major distress cycle. We raised it in a low default environment. We realized that our strategy, irrespective of cycle, is able to perform because we extract value in situations that others are too large to play in.
Why does the size of a credit fund matter?
In litigation finance or micro distress, some of the larger funds that raised billions on the back of what was expected to be a distressed cycle last year are too big. Now we have lots of complicated, hairy situations in the lower, middle-market: the $100 million to $5 billion enterprise value, small businesses that are deeply impacted by the pandemic that will not get the benefit of the Fed stimulus dollars. If we aim for $200 million, we’ll find little competition in the distress that’s out there. On the other side, you’ve got mega funds that raised tremendous amounts of dry powder. There is a structural mismatch between capital, 85% of which is held by large funds, versus where rescue financing and distressed opportunities lie.
How would you describe this cycle?
You’ve got highly levered companies with smaller capital structures, typically sponsor-backed, underwritten for growth that couldn’t materialize given how long the pandemic has been and what its done to the world. The other part is there has been a tremendous flow of capital that, without much discipline because of low interest rates over the last decade, has been chasing yield. There have been lots of loans and high-yield issuance where there is a lot of risk and not a lot of reward. Eventually, all you need is a series of micro events and you’ll have a steady stream of distress, not one large wave like the last global financial crisis. When companies lack access to capital markets, you see fraud, which yields market distress.
Where do you see the next set of opportunities?
Where you see a lot of money flowing, there will always be filings and litigation. Courts are humming and there are settlements with different pockets you can collect from. Sometimes they are insurance companies, some are corporations. You have to be careful with how you deploy capital and cautious about doing it in a way where you are levered to recovery.
Original source: Bloomberg Law