The Fine Art of Mastering the Lower Mid-Market Offering

As a leading direct lender targeting the lower mid-market in Northern Europe, CORDET provides bespoke financing solutions that target attractive, risk-adjusted returns

Since 2013, CORDET has been providing bespoke solutions to lower mid-market companies with revenues of up to €150m.

The firm’s choice of geographical target, and its deal structuring, led to the launch of two new direct-lending funds. Their success has contributed to the expansion of the CORDET network and fostered key relationships with portfolio companies and investors. To date, CORDET has invested in excess of €750m in the process.

This approach remains the cornerstone of the operation, and aims to provide institutional investors attractive, risk-adjusted returns. That perhaps explains the attractiveness of the lower mid-market. CORDET’s strategy has been to find out how superior returns can be achieved without enduring higher risk. The potential of those aims has been demonstrated, by investing in portfolio companies with low structural risk and robust documentation focused on capital preservation and downside protection.

Direct Lending Plus+

The CORDET team has a wealth of experience — some 20 years across deal execution, workout experience and credit analysis. This has allowed investors access to a market which has generated a higher return-per-turn of leverage and low structural risk — something the team refers to as Direct Lending Plus+.

Portfolio companies with a low loan-to-enterprise value-ratio (LTV), low leverage, and robust documentation demonstrate some of the characteristics that protect against risk. Lower leverage, and carefully constructed terms, have resulted in deals with higher average margins with respect to leverage. That makes these transactions more attractive to institutional investors.

CORDET’s ability to tailor terms has provided an additional avenue for investors to access a market requiring specialist experience.

Given that the Nordic market is dominated by bank lending, direct lending accounts for just five percent of the European market, with leverage on average and higher-than-market average. This makes the Nordic market particularly difficult to tap — and where specialists like CORDET come in, with deep local networks, direct relationships, and multiple sourcing channels.

The ability to tailor CORDET-sourced deals allows investors to benefit from selected lower mid-market transactions. The Direct Lending Plus+ strategy allows them to benefit from additional components, such as warrants, which provide additional upside without added risk. This is also true of capital preservation, where maintenance covenants are used to identify potential risks early in a deal’s lifecycle, enabling the team to intervene if necessary.

CORDET’s approach to bespoke financing has contributed to the development of its role as supportive partner for institutional investors and portfolio companies. Successful transactions have helped to forge a trusting relationship with investors, and those with further capacity are often afforded the opportunity to participate in new deals, as co-investors. For portfolio companies, existing borrowers can raise further capital through add-on facilities. Investing in existing borrowers contributes to consistent deployment, providing security for capital.

Differentiated Approach

Selection is crucial to the performance of CORDET portfolios, with layers of criteria to identify the credit quality of the investment pipeline. Those criteria are founded upon four pillars that speak to the CORDET strategy.

The pipeline undergoes another layer of screening, centred around the ESG framework, before being assessed through the CORDET investment process. The pillars are linked to CORDET’s key differentiators, ensuring that each fulfils the founding purpose of the direct lending strategy. The selection process filters and identifies investments which are supported by characteristics that ensure low structural risk — and adhere to the geography and sectors in which they operate.

The credibility of this process is upheld by the independent credit team, which oversees the investment process and provides an independent assessment on viability and risk. CORDET’s local network and sourcing model provides access to a deep pool of credit, which ultimately drives deal-flow and allows for a higher-level of selectivity.

Collectively these factors contribute to an offering that aims for a service and return that is more attractive than the typical strategy: Direct Lending Plus+. The service is founded on its determination to provide tailored financing at an attractive, risk-adjusted return through a differentiated investment selection process. That process is grounded in an ESG framework, acting in support of investors and portfolio companies alike.

 

CORDET’s Founder and Co-Managing Partner is Jakob Lindquist