We believe that non-investment grade, mid-market capitalization companies exist in an inefficient market area that market participants often overlook. Such companies can provide a fertile source of investment opportunities. We believe that certain segments of the high yield and leveraged loan markets, namely lower-rated securities (B rated or below) and securities issued by middle-market companies, are often misunderstood or overlooked by many investors and therefore are markedly inefficient.
For example, many traditional managers of large-cap high yield portfolios, which may have significant minimum investment size criteria and more rigid investment guidelines, do not find it cost-effective to dedicate sufficient resources to cover the middle market segment. This segment is less frequently traded, offers smaller investment sizes, is not as widely covered by high yield research analysts, and fewer brokers make a market trading in its securities. By adhering to a disciplined fundamental-oriented investment process and applying value investing principles to the credit markets through exhaustive financial and legal analysis, we seek to identify and exploit market inefficiencies resulting from such circumstances.
We believe uncovering these opportunities requires financial and credit expertise, extensive portfolio management experience, and keen legal skills. Our team calls on all these strengths in employing a bottom-up, fundamental-oriented investment approach.
By adhering to our investment philosophy, we believe we are well-positioned to deliver attractive, risk-adjusted rates of return throughout various market cycles.
Fundamental analysis is the cornerstone of the Polen Capital Credit investment process, designed to generate compelling risk/return investment ideas appropriate for each of our investment strategies. As a bottom-up investment manager, we conduct extensive fundamental research and due diligence for each investment opportunity. We seek to identify companies with a solid core business, a “reason to exist,” and generate sufficient free cash flow to service their fixed income debt obligations.
Our investment professionals are assigned coverage responsibilities by sector rather than asset type. This enables analysts to develop meaningful industry expertise, a deeper understanding of risk/reward profiles, and the ability to identify the most compelling investment opportunities in a company’s capital structure. We believe this uniquely positions us to identify the most attractive leveraged credit opportunities.
Our research process includes:
Completing extensive due diligence, seeking out company information from company filings and interviews with company management, customers, competitors, and suppliers
Evaluating a target company’s capital structure along with each debt instrument’s trading price and relative value
Analyzing key financial considerations, including:
Liquidity: a company’s ability to service its debt and other obligations over the short term
Free cash flow: a company’s ability to service its debt and other obligations over the long term
Asset coverage: overall asset value relative to liabilities incurred through the target class, a critical measurement in gauging downside protection
Performing periodic industry reviews that enable us to recognize the relative value of companies compared with their competition
We strive to assess management’s capabilities and the target company’s future financial prospects through our extensive research process. We leverage our industry network, and at appropriate times we seek to develop customized financing solutions for our portfolio companies that provide an attractive risk-reward opportunity for our clients.