about hybrid capital
Providing bespoke financing solutions to a range of companies alongside best-of-breed partners, Westbrooke’s hybrid capital platform offers investors the ability to generate a unique, asymmetric risk / return profile by participating in a combination of debt and equity financing transactions alongside Westbrooke shareholders and management.
By providing flexible funding solutions to a variety of sponsors in the lower and middle-market segment, Wesbrooke is able to structure tailored funding packages for clients. These comprise primarily of debt finance (senior, junior and mezzanine) solutions, but through the favourable negotiating position of being a key funder, we are able to participate in the businesses’ inherent upside by negotiating an element of equity co-investment. This can take the form of preferred equity, equity warrants, direct equity co-investments or a combination of these instruments.
key investment highlights
A debt-led approach to private equity investing
Contractual revenue streams with the protections of debt
Additional potential upside through equity warrants / co-investment
3 – 5 year target duration on each underlying instrument, with proceeds returned to investors on exit
Deal-by-deal and/or fund investment mechanism provides investors with a diversified portfolio
Returns linked to interest rates, providing an inflation hedge
who are westbrooke’s hybrid capital strategies best suited for?
The timing for an investment in hybrid capital is opportune, for both investors and borrowers.
Many investors are currently seeking secured, higher yielding investment opportunities which have the ability to outperform in the context of the current economic landscape which is characterised by volatile and declining public markets, high inflation and rising interest rates.
- Return profile blended between cash yield and accrued returns
- Medium risk appetite – secured debt investment risk, but generally not first ranking
- Medium term investment horizon
- Can invest in either ZAR or GBP (depending on the strategy selected)
westbrooke’s SA dynamic opportunities syndications
In South Africa, Westbrooke has spent a number of years as an active hybrid capital investor. These investments have been offered to a bespoke segment of clients on a deal-by-deal basis. Deals written comprise a combination of senior debt, mezzanine and preferred equity financing to a range of SA middle-market companies and entrepreneurs. Transaction sizes vary but generally fit within a target range of R50m – R150m and a duration of between 1 and 3 years.
Our first vintage of SA hybrid capital transactions has performed strongly, having generated a run rate IRR of 20.3% p.a. in ZAR, comprising a 11.3% p.a. cash yield, 4.1% p.a. accrued yield and a realised gain on equity warrants and co-investments of 4.9% p.a. on a blended basis across our portfolio.
the westbrooke dynamic opportunities uk fund
The inaugural Westbrooke Dynamic Opportunities UK Fund aims to provide investors with a unique blend of debt-like risk protection (including an interest coupon, security, enforcement rights and a defined exit term) with the potential for equity-like returns. This is achieved by blending these debt and equity instruments, providing investors with a portfolio of capital preservation-focused yielding debt investments, with the ability to achieve outperformance through the equity positions taken.
The c.GBP50m fund targets to provide investors with a diversified portfolio of 5 – 10 transactions which meet the above criteria in the UK market and focuses on providing GBP5m – GBP20m facilities to businesses which generate EBITDA of GBP2m and above. The fund aims to generate annualised investor returns of 12%+ in GBP, comprising 4% p.a. of annual cash yield, 6% p.a. of accrued yield and 2%+ p.a. as a result of the upside from equity positions taken.