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DISTRESSED CREDIT

The Hefele Group targets distressed-to-control investments. We seek to take control of underpriced corporates with non-performing debt and implement turnaround strategies where we can add value through management, strategic, and operational improvements. This is a value-add firm that actively works alongside management teams to execute our restructuring and turnaround strategies. We identify the specific issue hindering the company’s performance, and if we feel our value-add contributions can solve this issue, we will determine the best approach to gain control of the firm.

 

We focus on inefficient markets where we have a knowledge and skill advantage relative to our peers in the more crowded markets. Our geographic focus lies in Southern Europe where an environment of overly indebted corporates and weak financial institutions provides ample opportunity for investments. Many institutional investors do not actively cover these markets; therefore, we have fewer competitors bidding against us on deals. This lack of competition coupled with the arbitrage opportunity to enter high priced foreign markets through a cheap base in Southern Europe will create outsized returns for our investors.

 

We view downside risk protection as a key cornerstone in our investment decisions. Our outsized returns come from acting in inefficient markets and acquiring assets at far below intrinsic value – not from taking high risk speculative positions. We recognize that we employ a higher risk strategy and therefore ensure that we protect downside loss by investing in firms with assets that preferably exceed our investment. We believe in the old adage, “if we protect downside, the upside will take care of itself.”

 

Our team is comprised of international investment professionals with backgrounds in debt restructuring, private equity, consulting, and investment banking. Success in distress-to-control comes from being able to identify potential in firms that other investors have disregarded. Our team’s broad range of backgrounds affords us the ability to see differently than other investors.

 

This entrepreneurial mindset offers flexibility in our investment approach. This advantage coupled with our financial and managerial network puts us in a competitive position to execute our strategies. Furthermore, the team pairs international talent with local talent in the specific countries we invest in. This unique combination gives us an advantage over both our international and domestic peers: our international network gives us an advantage over our local peers, and our local market relationships and access to deal flow helps us out maneuver the international funds.

 

Depending on our thesis and the capital intensity of our approach, we will use one of the three below strategies to gain control of the asset:

 

Option 1) Manage the asset

Create an agreement with the NPL owner to take over and run the company for an agreed period of time. Prior to taking over the operations, we will determine the price of a call option to purchase the company in the future. We will then manage the company and should the turnaround prove successful, purchase the company at the previously agreed price. This limits the amount of capital deployed upfront and substantially mitigates risk.

 

Option 2) Purchase the fulcrum security

If the NPL owner does not agree to the management approach, we will then aim to purchase the fulcrum security in order to gain control of the company in bankruptcy. 

 

Option 3) Purchase or restructure the debt

Should the bank not agree to the above two strategies, we will purchase the debt and take control of the company at the outset. This does create additional risk; however, we will have more flexibility in our managerial and strategic decisions.   

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