Pender Podcast PM Series - Pender Credit Opportunities Fund - The Story So Far

So we went from 18 to 50, but we went there by way of 10.

And that's often the way it works.

And so the other advantage of this kind of structure is that you're not mark to market every day, and people are not seeing some of the volatility that comes from these relatively chunky positions and these stress structures.

But we believe in the value long term, and that's the kind of thing that comes through.

Yeah, no, definitely.

I think it's an interesting fund because you see the numbers and performance looks good, but sometimes when people hear the term distressed credit, it can sound a little bit intimidating.

So maybe Prul, could you explain what exactly stress and distress credit is in simple terms?

So we have a simple term and we call a technical term how we define stress and distress credit.

So in simple terms, when a company issue a bond and tell the maturity, the performance of the company, the balance sheet of the company and the state of where it is operating is not always good.

It goes through its bumpy road, like maybe within five years, six years, and the credibility of paying the principal back of their bonds Like sometimes it's increased, sometimes it's reduced.

And in that situation, the company usually becomes like stress and sometimes distress.

In technical terms, any credit is trading 500 bps above the treasury, we start calling that distress.

And any credit which is trading above 1000 bps, over the treasury we call distress.

And the idea of stress is these will be performing credit, but as the fundamentals improve and turnaround happens, these credits which we bought below the bar will ultimately increase in the price and we will get the better return.

Whereas in distress, sometimes something just turn around or sometimes we have to create an artificial catalyst through bankruptcy, clean up the balance sheet.

Now, Laura, I want to point out here which you said people are scared of distress, but people don't understand that a bankruptcy is a good, sometimes it's a good thing for the company.

Maybe not always good for the stakeholders, which part you are, but for the company, it is good because if you have a bloated balance sheet and bankruptcy allow you to deliver the balance sheet, That's good for a company long run.

Recently, we were involved in a company called Bullspeed.

What has happened in 2020 when EV cars were becoming very famous, they provide silicon wafers, which goes, not to go into technicals, but they provide silicon wafers and they want to move into silicon car parts.

Now that technology required a lot of capex and build a lot of factories because they were creating two facilities.

So those factories required like almost 6 billion of capex and company has financed us that capex to balance sheet.

And over the time, the revenue and what company was expecting, the speed, the revenue will come, the projects will come, then came.

And that created a bloated balance sheet.

But in general, the company itself is very good.

It just has a bloated balance sheet.