RM Capital is looking to tap the public markets for its strategy of targeting credit investments in UK-based small and medium-sized enterprises.
The firm is planning a listing on the London Stock Exchange of its RM Secured Direct Lending strategy, where it is hoping to raise £100 million ($125 million; €118 million) from an initial public offering.
RM Capital’s strategy is to target senior secured loans with ticket sizes ranging between £2 million and £10 million. The loans are index-linked, which is meant to provide protection against the possibility of inflation. Each of the firm’s loans will be secured against real assets, such as real estate and plant and machinery.
Targeted returns are 6.5 percent once the funds are fully invested, but across the first financial period ending December 2017 the firm is eyeing up a total dividend of 4 percent. The firm is open to investing in mainland Europe, but will deploy a minimum of 70 percent of its overall portfolio in the UK market.
Advising RM Capital on the initial public offering is Nplus 1 Singer Advisory.
James Robson, chief investment officer at RM Capital, described the area of the market the firm is involved in as a “sweet spot” – where ticket sizes are too small for the banks and private debt funds, but too large for marketplace lenders. At the timing of the announcement, the firm said that it had £136 million worth of opportunities in the pipeline.
The uncertainty of Brexit, while providing a challenge for lenders, should also bring its rewards. Robson told PDI that the uncertainty “is positive for our strategy as investors want an asset class that provides stable returns in a low yielding environment”.
For many commentators, however, the prospect of Brexit is expected to herald a rise in inflation in the New Year with a likely impact on material costs for UK companies. Robson said that the strategy has accounted for this. “Three quarters of our portfolio is fixed coupon with a weighted average life of four years. So as we move through the cycle and rates start to rise we can recycle capital at a higher level,” he said.
“Within our portfolio pipeline – 10 percent of our portfolio is floating rate and 15 percent is linked to inflation, so we hopefully have a good mix here that as we move through the credit cycle, we should see as we’re in a fixed income product that should see NAVs increase as rates go higher,” he added.