Democratising access to fixed income opportunities

Bedford Row Capital explains.

Bedford Row Capital (BRC) is an award-winning leader in the origination and structuring of fixed income securities. We are delighted to be FEIFA partners and believe we have a unique perspective in the hunt for yield.

BRC has established a track record of providing products for investors which access the types of yields which previously have been only available to institutional investors. We provide a comprehensive solution for structuring, arranging, originating, and listing of debt securities. The debt capital markets does provide a source of secure income for investors as well as transparency of pricing and liquidity. Large corporates dominate the debt capital markets; it is our mission to provide for a wider range of assets and opportunities for investors to participate in mainstream financial instruments.

Investors need more sources of income. Cash yields are virtually zero (or negative in EUR and CHF) and corporate yields come with price volatility.

And yet, many companies have cash generating assets which are well known; property, renewable energy, mining and supply chain financing can provide sources of yield but how to access them?

We are asset class agnostic and have listed nearly 70 transactions since 2016. We follow a defined structuring process, focusing on 4 factors to provide a clear and transparent approach.

1) Assets — Each issue is based on clearly identifiable real assets.

2) Cash Flow — Self-liquidating maturity matched transactions.

3) Security — Security of ownership on assets clearly described.

4) Recoverability — Recourse on assets and cash flow, perfecting security and assignment of interests provide investors security during the life of a transaction.

The focus for the next twelve months will be on:

1) Short-dated securities with a positive return for cash management while looking for medium term yield.

2) Senior, secured, high yield bonds (3–5 year, 6%+) with a focus on tangible assets in mainstream markets (the simplest example being UK property), and

3) Green and sustainable, an accelerating trend with some interesting innovations.

Overall, as we help to arrange and originate numerous deals with different maturities by analyzing our proprietary data, an interesting trend emerged, as the view of the market is telling an interesting story. More and more investors are looking at short term transactions. This has been made more timely post-COVID.

Short-term Investing

We are in a low-yielding environment and investors are faced with a conundrum. Cash is negative so the search for yield introduces new

opportunities. What we see is that investors are shying away from increasing duration (five years looks tricky); is there a less than one-year option?

Not usually accessible for broader investor base, CP Funding provides direct access to real economy assets with a positive yield even combined with insurance. Skewed risk-return profile.

High yield

The cornerstone of funding growth businesses including property financing, renewable energy, mining and other real economy businesses. The question is often about “why are they paying 7% and offering full security”? The answer is twofold: debt is cheaper than equity and they do not want to give away 20%+ to equity investors as well as the fact that they cannot get bank financing. Transparency is important about the nature of the asset, the security and particularly any liquidity reserves. For the right kind of asset, a three to five year outlook may be a good bet at the right yield.

Green bonds

Green and sustainable investing is a long-running theme. A variation on the high-yield story (with attractive yields over the medium term), the issue then comes down to certifying and auditing the use of proceeds. Who is watching how the money is spent to ensure the green (or ESG or other sustainable objectives) are met? The core proposition should still be certain; assets and cashflows and security. With ethical objectives, we see a trend to more green bond issues coming to market in the coming year.

The debt capital markets exist to create liquidity for both investors and issuers. Our role is to connect the dots and provide access to the market for both entities. The advantage of fixed income instruments is transparency as to use of proceeds and security for investors. As bank base rates remain low for the foreseeable future, there will be more options available for advisers to provide their client with access to yields in a smart and transparent manner.

For further information contact Scott Levy — slevy@bedfordrowcapital.com

or tel: +44 (0)7901 914 055.