Risk Management / Due Diligence
- Invest in single-handed transactions in which we control the entire bond issue to manage risk
- Diversify portfolio and limit position size
- Invest in a minimum of 20 holdings
- Average position size is 2% to 4%
- Encourage obligor to prepay indebtedness with excess working capital
- Strong fundamental and technical analysis with regular communication and visits with management
We look to stand apart from other investment advisory firms because of the superior quality of due diligence performed on every new and existing bond transaction. Such due diligence drives the creation of transaction structures and security provisions designed to protect the GIM client from unnecessary risk.
We begin our due diligence with analysis of the law, regulatory, and political climate associated with the financing contemplated in any given sector and geographic location. We then engage in a thorough assessment of the borrower and the project, including:
- Site visits
- Information about the borrower contained in various databases, including state and federal databases
- Corporate structure of the borrower, including related entities
- Financial statements
- Tax returns
- Operating history, including forecasts
- Debt history, including current outstanding long- and short-term indebtedness
- Projected project costs
- Documentation pertaining to real estate and other sources of collateral, including gross revenue pledges
- Additional sources of income
- Past, present, and future contractual obligations
- Litigation history/search of legal databases
- Management and internal controls
- Key employees
- Potential for expansion/growth
- Other factors related to potential for project success, such as marketing plans, use of outside consultants, and borrower equity contribution.
During the life of the bond, we oversee credit quality on an ongoing basis through monthly analysis of financial and other performance data. We analyze quarterly unaudited and annual audited financial statements. We interview professionals and experts in various sectors to keep current in terms of new developments in any given sector. Site visits are conducted semiannually or annually at all projects, depending on the seasoning of the credit. Site visits always include "in person" meetings with management and/or board members, as well as assessment of competition. This level of initial and ongoing due diligence provides for early awareness of potential problems that may impact credit quality and provides for timely intervention, if ever necessary.
Our active management and daily discipline in buying, selling, and monitoring our equity holdings is driven by a combination of fundamental and technical analysis and valuation. We monitor the William O’Neil databases carefully for signs of strength and weakness in our holdings. We also monitor watchlists to identify opportunities and manage risk. Additionally we speak with and visit company management regularly. We maintain two valuation models which are the drivers of our implied total return assumptions. When a stock has appreciated to the point at which its implied total return falls below our 10% hurdle rate we will most likely trim that security and redeploy the capital.