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Eppley, NCB Capital Markets form Caribbean’s first mezzanine fund

Published:Friday | December 23, 2016 | 12:00 AM
Nicholas Scott, manaing director of Eppley Limited.

Eppley Limited and NCB Capital Markets have formed the Caribbean Mezzanine Fund, the first of its kind to be focused on the region.

The fund is a joint venture between Eppley and NCB Capital Markets, each of which will also act as the fund's co-managers.

The fund's investment objective is to generate attractive risk-adjusted returns by originating and investing primarily in mezzanine securities and other forms of commercial credit, NCB Capital Markets and Eppley said in a joint release.

In doing so, the investment activities of the fund will improve access to capital for businesses in Jamaica and other areas of the Caribbean.

A wide cross section of institutional investors have already provided more than US$15 million of preliminary commitments to invest in the fund, the release said.

Eppley Limited and NCB Capital Markets said they expect to close the fund before the end of the year. "The fund's first close will be in excess of US$15 million. Our primary focus is to deploy this capital carefully, in line with our investment strategy," the investment houses said in response to Financial Gleaner queries.

They explained that mezzanine finance is a flexible and adaptive form of capital. It sits in between ordinary equity and senior secured debt in the capital structure of a company. It shares characteristics of both debt and equity. As a result, its risk (and its return) is generally lower than pure equity but higher than pure debt.

Mezzanine investments are generally structured as subordinated debt, convertible debt, preference shares and ordinary shares.

The companies said access to flexible risk capital is challenging for many companies in Jamaica and the Caribbean and is looking to grow and expand their business.

"Policymakers and multi-laterals have encouraged the private sector to be innovative in addressing this access to capital constraint. At the same time, traditional fixed-income invest-ments available to most institutional investors now have the lowest yields in decades. Eppley and NCB Capital Markets have collaborated to form the fund to address these twin challenges," they said.

"That is, to manage a pool of institutional capital designed to give businesses in Jamaica and the region access to flexible, adaptable capital while providing attractive risk adjusted returns to investors," the companies said.

The investment houses said that "while the fund is the first mezzanine fund in the Caribbean, this strategy is commonplace around the world. The fund's investment strategy is also an extension of Eppley's own principal investment portfolio".

They said the fund can invest throughout the capital structure. "However, it's focus will be on subordinated loans, preference shares and ordinary equity. The structure and the terms of each transaction the fund makes will vary. However, in each instance, our objective will be to meet the needs of our portfolio companies, while ensuring that our investors are fairly compensated for their risk."

Eppley Limited, which is listed on the Jamaica Stock Exchange, originates and invests in credit opportunities in Jamaica, the Caribbean and Central America, while NCB Capital Markets is the wealth management and investment banking arm of National Commercial Bank Jamaica Limited, the island's largest commercial bank.

"We are pleased to expand our business by building upon our core investment philosophy. The Caribbean Mezzanine Fund provides investors with a compelling alternative to traditional fixed-income investments and provides companies with a decisive, flexible source of risk capital to grow their businesses," said Nicholas Scott, Eppley's managing director.

"Constantly, we seek to find creative solutions for our customers and with NCB Capital Markets' regional footprint, we are pleased to be able to partner and innovate to derive value for those we serve. We are committed to embracing business agility and to provide customers with tailored financial solutions which allow them to take advantage of the opportunities within our portfolio," said Steven Gooden, NCB Capital Market's chief executive officer.