Aequitas Capital will reach a first close of around $20 million on its Luxembourg-listed credit bond offering at the end of this month, executive vice president, corporate development Andy MacRitchie, told PDI. The firm is targeting up to $150 million in total for the listed security which will hold quarterly closes until it hits that ceiling, MacRitchie said.
The US dollar-denominated bond, which will be listed in Luxembourg and has a minimum investment threshold of $1 million, will be used to invest in loans originated by Freedom Financial, a US-based consumer debt advisory and consolidation service, MacRitchie explained.
Aequitas, which operates a number of private credit strategies in the US, opted for the Luxembourg structure for a number of reasons, MacRitchie added. It allows the firm to offer other compartments targeting different strategies and is also UCITS-compatible. The initial offering includes two compartments with the same underlying collateral, Freedom Financial-originated assets.
Investors can opt for either or both compartments. The six percent yield one-year extendable piece can be rolled over for up to five-years or investors can redeem after 12 months. The other compartment is a three-year non-redeemable compartment which will pay an eight percent coupon. Aequitas Capital is taking a 10 percent first loss slice of the equity across the board to align itself with investors, MacRitchie added.
Freedom Financial was established as a personal debt advisory and consolidation service. It advises consumers with too much personal debt and negotiates directly with creditors on their behalf to get write-downs on unaffordable outstanding loans. The business has evolved and the firm now offers loans to clients to pay off the written-down debts with a repayment profile that they can afford, MacRitchie said.
The average loan size is between $12,000 and $18,000 with weighted average life standing at 45 months. The platform originates around $15 million in loans a month, MacRitchie noted.
Freedom Financial’s loans charge interest rates in the mid-teens, he added. Explaining the difference between the bond yield and the underlying assets, MacRitchie pointed to the default rate which Aequitas estimates at around five to six percent, though the current figures are lower. Excess returns cover the management fee and anything above that goes to Aequitas but is also a buffer to protect investors from losses, he said.
Aequitas’ has structured the offering for European investors exclusively who are better informed on credit investments, MacRitchie said. He added: “We found a real interest in what we do and a greater understanding of private debt… Investors in Europe like what we do and are on board with niche opportunities and … like exposure to the US market.”
As well as tapping investors on the European side of the Atlantic, Aequitas is also starting to look at European investment opportunities, he concluded.
The bonds will be listed on the Luxembourg Stock Exchange and will be tradeable on the EURO MTF market.
Aequitas Capital, which was founded in 1993, had $1.67 billion in assets under management as of May. It invests in a number of specialist sectors including marketplace lending, healthcare, education and transportation.