Why we are not Greensill

Why we are not Greensill

Investors can expect to be asked by their Credit Committees to explain how an investment in the Pactum Corporate Capital Fund differs from the Greensill/Credit Suisse situation. Hopefully, we can lay out the very significant differences here and help those conversations:

Firstly, it is vital to understand the main differences between Supply Chain Finance (Greensill) and Receivables Finance (Pactum). Yes, both are forms of working capital finance, but in the former, you have significant exposure to your client (whose debts to their suppliers the program pre-pays). In the latter, in contrast, we have significantly diversified exposure to our client’s customers (whose invoices we pre-pay to provide the client with working capital). The Greensill portfolio appears to have been highly concentrated and hence exposed to the failure of any specific credit, in their case, specifically the Gupta group of companies.

Secondly, our funds own valid invoices purchased on a true-sale basis, that is to say, remote from any potential bankruptcy proceedings of the Seller. They can be confirmed with the Obligor as a valid debt if needed and are credit insured for non-payment by a major insurer.

Unfortunately, it appears that Greensill lent against receivables (as opposed to buying them outright), and some of those invoices might have been for “future business with future clients”. I.e., it was unsecured lending. 

At any time, any investor is welcome to visit the Pactum offices and see a complete list of every invoice owned by the PCCF, plus the legal opinions confirming that those invoices have been bought on a true-sale basis. 

To summarise, while both are/were working capital strategies, they are as different from buying a short-term asset-backed note or making a long-term unsecured corporate loan.

Rick Pearson brings nearly 30 years of financial and money market experience to the team and is responsible for product design and investment management at Pactum. From time to time, we publish his thoughts on current developments in the financial market here.