This $100 million facility6 Dec 2019 20:51
I think there is some confusion among posters about the $100 million revolving credit facility announced in the RNS on 2nd December. Some think is a loan to be repaid by Alpha and some think it is a debt liability for Alpha.
The fact is that the facility is neither a loan nor a debt. It is a “facility”, not too dissimilar from an overdraft or credit card facility. It is there to be used as warehouse finance to acquire individual SLS assets at a discount to face value, bundle them together and sell them on as significantly sized investment packages to clients via a fund manager. The sale proceeds are paid back into the facility to be reused to buy more SLS assets. The money revolves, as in the name “revolving credit facility”. The provider of the RCF will take a decent fee no doubt.
The facility is to be contained within a “bankrupt remote SPV”, which means there is no blow back to Alpha is things go wrong. The SPV is a separate warehouse finance entity currently under incorporation. The source of the money for the facility has been touted. It’s not M&S but not far off IMO.
At any point in time the amount drawn from the facility will equal the value of the bought assets, so the balance sheet of the warehouse entity is always zero with no net liability, irrespective of the scale of SLS acquisitions.
The velocity of revolution is said to be 4X in a year, so in theory as much as $400 million of SLS assets could be bought, packaged and resold through the fund manager in year 1, and Alpha would be not be saddled with any debt. The fund manager will no doubt charge the clients a 2% management fee, amounting to up to $8 million for year one, in theory.
The same game goes on, year after year, until saturation point is reached. Over a decade, fund management fees might reach $80 million a year. The size of the SLS market is in the billions and is mature in USA, but non-existent in Europe which is a similarly sized market.
However there are other income elements for Alpha as consultants who are orchestrating all this : introduction fees and outstanding performance bonuses, for example.
The possible income for Alpha, if all this comes off could generate a market cap as Danny Swick suggested of 100 million over time and it does not matter whether that is pounds or dollars.
That is my take on it FWIW.
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