Fund focus: ADM aims for clarity in private debt

For its latest secured lending facility, ADM Capital felt a new twist was needed in private debt fundraising. The firm was concerned that investors weren’t properly appreciating the fundamental differences between a private lender like ADM and a private equity investor. That could lead to LPs taking on more risk than they had intended – or, conversely, underestimating the potential return that a debt fund could bring.

For help, ADM turned to US-based Egan Jones to evaluate and rate the firm as a debt product so that potential investors could know at a glance what kind of risk to expect. The result is Asia Secured Lending Facility II (ASLF II), which recently closed at $178 million with an investment-grade rating of BBB+.

“The rating agency spent a great deal of time in our data room, and they did a deep analysis on the portfolio,” says Christopher Botsford, a co-founder of ADM. “That’s helpful because they’re trusted by the insurance regulators in the US, and bridging the gap between, for example, a US insurance company and what’s going on in private credit in Asia, is really what this is all about.”

Investment opportunities are expected to be strong across the region, as businesses that have problems accessing traditional forms of financing turn to private lenders for short-term relief. ADM plans to provide loans with an average tenor of 18 months, in the expectation that borrowers will refinance as soon as they have addressed their immediate needs. It sees ideal borrowers as businesses that are fundamentally sound but need capital to meet an urgent need.

“We actually end up working quite a bit with our borrowers on what their strategy is, particularly from a financial perspective, whether it’s selling off non-core assets, identifying their weak points, or trying to alleviate bubbles where they may occur in the future,” says Botsford.

One recent deal saw the firm provide financing to a warehousing business in Southeast Asia that wanted to upgrade its facilities. The company’s existing bankers were reluctant to lend for a project without a clear pay-out, so ADM stepped in, reasoning that when the upgrade was complete the company could grow its business by catering to e-commerce providers.

ADM also plans to push borrowers to implement its environmental, social, and governance (ESG) principles, particularly since the International Finance Corporation (IFC) and the Overseas Private Investment Corporation (OPIC) are investors in the fund. Enforcement is expected to be relatively straightforward, since entrepreneurs in the region are increasingly aware of the benefits that ESG adherence can bring to their businesses.

“That safeguards our money and our reputation, but it’s also win-win, because it positions the company to go out and more easily raise money in the future,” Botsford says. “The last thing you want to do is put money in a company and then find out it has hidden ESG issues.”   

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• Topics
• Southeast Asia
• Greater China
• Credit/Special Situations
• Fundraising
• ADM Capital
• IFC
• Overseas Private Investment Corporation (OPIC)