Daniel Sachs in Dagens Industri interview

May 3, 2011

Translation of the interview by Anna Ekelund, published in Swedish in Dagens Industri on 3 May 2011

During 2012 and 2013, syndicated loans totaling EUR 100 billion are to be refinanced in the Nordic countries. At the same time, bi-lateral bank loans of approximately the same size will have to be refinanced.

Of interest to the issue is the fact that a portion of the loans was granted by banks that are no longer in the game, such as Icelandic banks, and that some of the companies are already highly leveraged and thus do not represent ideal customers for major Swedish banks. Accordingly, at the same time as demand for capital is expected to reach at least EUR 200 billion in the next two years, supply will be limited. Banks are under pressure from new regulations such as Basel III and a considerable portion of available capital will be needed by countries rescheduling their national debt.

This is the situation that has led to the boom in corporate bonds, with large and stable companies cost-effectively bypassing banks to raise money directly through the bond market. However, for small and midsize companies and, for example, companies with restructuring requirements, the situation is more complicated.

A hitherto relatively uncommon alternative in Sweden and other European countries is obtaining direct loans outside the banking system. Proventus Capital Partners has recently raised SEK 5.2 billion, which is to be loaned to midsize companies in the Nordic region with capital requirements for corporate acquisitions, expansion and restructuring. Part of this money will also be invested in corporate bonds.

In addition to Proventus, which is owned by Robert Weil, the investors include the Fourth AP Fund, Folksam and Länsförsäkringar.

– Our focus is not primarily to manage other people’s money. We are investing most of our own capital in this structure, but with a larger capital base, we can better capitalize on the market conditions and create a more efficient structure. That is why we have invited other investors to join us, says Daniel Sachs, CEO of Proventus.

As with a similar undertaking in 2009, when a total of SEK 2 billion was invested in 15 companies, Proventus will account for approximately 20% of the capital. For the past 12 months, net returns for investors have been approximately 13%, after calculated profit share.

One example of a company that has been granted a loan from Proventus is the Internet travel agency, European Travel Interactive, which required financing for a bid for its competitor Travel Partner. The companies have sales ranging from SEK 500 million to SEK 5 billion.

– We employ rigorous analytical methods and have not been afflicted by any loan losses so far. The companies have performed well and our funds have made a difference, which is important, comments Sachs.

Proventus has the right to participate as an observer on the Boards of the companies it has granted loans to. Its representatives meet regularly with the management and maintain contact with the owners and creditor banks.

– We usually give loans to companies that have a strong market position, strong business concepts and strong management, but which require capital to take their next big step. We have also been active in several complex situations such as restructurings, which is of interest to us as long as there is quality in the business and the long-term prospects are favourable, explains Sachs.

Since Proventus is subordinated to the bank loans that most companies have, interest rates are higher than those of banks, usually somewhere between 10% and 12%.

– We assume greater risks than banks, but less risk than equity holders. That is why our return requirement is also in between the two, but the exact rate of interest we charge depends on the risk and is specific to each case, explains Sachs.