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CAPITAL MARKETS UPDATE: COMPANIES ARE INCREASINGLY RELYING ON INSURANCE STRATEGIES TO RAISE CAPITAL
As liquidity in the economy tightens and the cost of capital begins to rise along with interest rates, many companies, especially those in higher risk sectors, are finding borrowing costs to be growing more expensive. As a result, they are turning to additional strategies, such as "insurance capital" to de-risk their business model and raise cheaper debt in both the public and private markets.
"There are currently very few options for companies seeking to grow their businesses when risk-based capital is non-existent in both today’s marketplace and in the foreseeable economic future," says Edge Management Managing Member, Nemo Perera. "Edge has developed a proprietary technique, using insurance as an alternative form of capital, to help mitigate risks associated with, for example, green technologies, which enables companies to raise debt without equity dilution in both private and public debt offerings."
Perera explains that "'Insurance capital' helps smaller businesses leverage the balance sheet of billion-dollar insurers to help raise comparatively cheaper debt that is duration-matched to a company’s off-take agreements. An insurer’s balance sheet also provides our clients with a “shadow rating” for the purposes of securing low-cost debt. Edge has developed the most efficient path forward for risk-adjusted ESG-related investments, benefiting both entrepreneurs and investors."
BUILDING CLEVER, RISK MITIGATED TRANSACTIONS WITH INVESTMENT APPEAL
Securitization of Life Settlements – EDGE and its partners have created an investment grade life settlement-backed bond that will be sold to U.S. and foreign qualified investors. The EDGE bond is rated investment grade (“BBB” or better) by a national bond rating agency. It is expected to be the only life settlement backed bond structure in the marketplace that is rated and can be purchased by U.S. and foreign qualified investors. EDGE has identified for securitization several portfolios of life settlement assets with an aggregate face value of approximately $1 billion. All life settlement assets will be subject to specific selection criteria and comprehensive due diligence.
Securitization of bio fuel projects – EDGE has developed a structure for an investment grade, biofuel-backed bond which is designed to provide a consistent, attractive yield with a potential residual distribution for investors. The EDGE model is unique in that it mitigates risk through (i) a performance guarantee offered by a global S&P rated insurer, (ii) financeable off-take agreements with highly rated counter parties, and (iii) operational management by an experienced team of professionals. EDGE proprietary securitization models have been verified by independent US third parties (e.g. investment bank, rating agency, etc.) to support the projected bond return profiles. EDGE’s industry experts have significant experience in the renewable resource asset class having developed innovative risk mitigation techniques and insurance solutions to help secure biofuel investments.
Edge Renewables Private Equity Fund – EDGE Management is developing EDGE Renewables, a private equity acquisition and development vehicle through which investors can invest more securely in renewable energy projects.
