Latin America trade financier Latitude20 Capital Partners is expanding its business after striking a partnership with Corrum Capital Management and entering into a senior secured credit facility with Tennenbaum Capital Partners.
New York-based Latitude20 will receive a $250 million investment from Corrum as part of the arrangement, proceeds that will help it increase the size of the investments it can deploy. Latitude20 makes senior secured loans to small and mid-sized enterprises that are commodity-based exporters based in Latin America.
With the credit facility, along with the partnership, those loans will be between approximately $2 million-$25 million, the firm’s chief operating officer Jason Bross said. Previously, the largest loan Latitude20 could underwrite was $15 million, Bross said. They have lent against durable/storable commodities including frozen fish, sugar, soybean and tobacco.
Despite the borrower’s location in emerging markets, Bross said the investments are not subject to the volatility of their home markets. The repayment risk is transferred to the entities importing the goods, which are located in investment-grade countries, he said.
“I think you’ve seen a lot of dislocation in emerging markets certainly this year,” Corrum co-managing partner Jonathan Mandle said, noting that was particularly the case in Latin America. However, it’s not necessarily the case with the niche strategy of trade finance, he explained. “The agriculture for Brazil and Argentina has been performing reasonably well.”
Latin America’s private debt fortunes have turned recently, with vehicles targeting the region seeking $1.99 billion, according to PDI data. This comes after the region garnered no dedicated capital in 2017 and attracted only $660 million in 2016.
This capital raised by Latitude20 is above and beyond the almost $2 billion private funds are seeking for Latin America. The arrangement is structured to meet the strategy’s unique needs, something more arcane than a corporate term loan.
“We find that for Latitude20’s business model a traditional fund structure for commodities financing creates a mismatch with funding needs and the underlying collateral package, which is the natural source of repayment,” Bross said.
“Because of the Basel accords, banks have been pulling back from trade finance but you need more flexible and semi-permanent capital to execute,” he added.
That secular shift also got Corrum thinking about what opportunities it might present.
“From our perspective, we were thinking about strategies that were going to have modest dislocation because of a new regulatory regime,” Mandle said.