Andrew Sung, head of research at Atlas Credit Partners, discusses middle-market financing, post-SVB opportunity set, and lending against intellectual property. They explore investment strategy in changing credit environment, lending to growth companies with IP portfolios, unique lending model, deal sourcing, and updates on business and finance sector.
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Quick takeaways
Atlas Credit Partners provides debt financing solutions to middle-market businesses unable to access traditional bank financing, filling the gap left by larger asset managers.
Atlas Credit Partners focuses on lending against intellectual property, offering strategic finance to growth companies with heavy IP portfolios.
Deep dives
Opportunity in Middle Market Space and Bridging the Gap
Atlas Credit Partners is a Houston-based special situations credit fund that focuses on middle market private credit, direct lending, and public market distress debt investing. Their unique thesis is to invest in great businesses in transition in the middle markets that are unable to access traditional bank financing. They fill the gap left by larger asset managers who focus on larger investment sizes, while Atlas Credit Partners targets overlooked businesses requiring capital deployments of $50 million to $150 million. Their approach combines flexibility between private and public credit markets, depending on the opportunity, and takes an active approach to private credit by forming long-term partnerships with management teams.
Opportunity for Shop-Like Euros in the Current Environment
Atlas Credit Partners sees increased opportunities for lenders like them in the current environment. Growth companies that were previously overvalued are now priced at substantial discounts to intrinsic value. Traditional growth equity has become scarcer, and Atlas Credit Partners aims to provide debt financing solutions to these growth companies in both private and public markets. By offering transitional capital, they help protect equity holders from dilution during a vulnerable period. They bridge the gap between traditional venture debt and traditional bank financing, targeting deal sizes of around $50 million to $100 million.
Soundhound AI: A Case Study in Intangible Asset Lending
Atlas Credit Partners recently provided $100 million in strategic finance to Soundhound AI, a company focused on voice artificial intelligence. The loan is secured by Soundhound's intangible assets, primarily its extensive intellectual property portfolio, which includes around 250 patents protecting its core architecture. This approach reflects Atlas Credit Partners' willingness to lend to businesses with heavy IP portfolios, even when they lack substantial hard assets or strong cash flows. Soundhound AI's business model, capturing the growing trend of voice-enabled search and information access, aligns with Atlas Credit Partners' belief in lending to growth companies with transformative technologies.
Proactive Sourcing and Direct Networking for Deal Flow
Atlas Credit Partners sources its deals through various channels, including investment bankers, discretionary advisors, brokers, and personal and professional networks. They maintain a proactive approach and actively engage with management teams, often thanks to personal referrals and an excellent reputation within the industry. By avoiding heavily bank-dependent processes, they compete less for deals and can focus on offering debt solutions in direct comparison to growth equity raise solutions. The company emphasizes the importance of building relationships and partnerships with management teams, creating a positive reputation that leads to referrals and expanded deal flow.
Andrew Sung, head of research at Atlas Credit Partners, discusses middle-market financing, the opportunity set following the collapse of Silicon Valley Bank and lending against intellectual property with Reorg’s James Holloway. Atlas Credit Partners is a private credit firm focused on secured direct lending and illiquid secondary credit opportunities based in Houston, Texas.
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