Our client, a US-Based merchant bank that provides capital raising, M&A advisory services as well as runs its own private investing practice, received an opportunity to invest and lead $200mn fund-raising efforts for a company that specializes in Merchant Cash Advance (MCA) loans.
JMI was asked to help them build a robust financial model and create an in-depth loan portfolio performance analysis and effectively communicate the investment opportunity to secure funding.
Solution
Data Collection: JMI team gathered data on the loan portfolio, including loan types, loan amounts, interest rates, borrower information, and repayment history. Based on historical loan tape data, we calculated a detailed month-wise breakdown of the funded principal, commissions, gross factor rates, actual collections, loss rates, and a month-wise Merchant Cash Advance (MCA) asset IRR.
Credit Quality Assessment: Evaluated the credit quality of the loan portfolio and calculated key metrics such as non-performing loan ratio, net charge-off ratio, and provision coverage ratio. Assessed the adequacy of loan loss provisions set aside for potential credit losses.
Financial Model: JMI team collaborated closely with Company's management team to develop a comprehensive financial model that forecasted the IRR of their MCA assets loaned out which incorporated various key inputs and assumptions.
Portfolio Yield and Return Analysis: JMI team also analyzed the portfolio yield and return metrics to assess the profitability of the loan portfolio considering the interest income generated from loans, net of provisions for credit losses and operating costs. Evaluated the impact of changes in interest rates on the portfolio's performance.
Outcome
We successfully created an in-depth loan portfolio performance analysis & summary and a portfolio build-out strategy that effectively communicated the $200mn investment opportunity and potential returns to prospective investors.
Our model provided a comprehensive summary of the payoff structure with expected cash flows at the unit level for a Merchant Cash Advance (MCA) loan by factoring in all the key loan terms.
