Find situations where business valuation exceeds debt obligation.
Bonds are a debt that a company owes to its holders. They are an obligation to repay the debt at the maturity date. As with almost all investments at Pender we “begin with the end in mind”. So before we invest we ask ourselves, “how will the company pay us back?” And even once we have made the investment, that question is never far from our minds.
We look for situations where business valuation exceeds debt. We want to know that, should the company not be in a position to pay us back in cash, that it has assets sufficient that, if liquidated, could cover the debt. The higher the coverage the more likely we will get our money back at maturity.
“…in situations where we believe there is strong business valuation coverage of debt obligations…”
Every month Geoff Castle, Portfolio Manager of the Pender Corporate Bond Fund, writes a commentary covering the challenges and opportunities in the Fund. Each commentary includes highlighted holdings, and their key characteristics, often with reference to coverage.
“… things like coverage factors…does the company generate substantial margin of EBITDA versus interest or EBIT versus interest or free cash flow versus interest, is there a strong interest coverage that comes from internally generated cash flow. It’s one of the more highly weighted factors we have in the piece.
We’re marking the holidays with the 12 Days of Investing the Pender Way. Short posts in which we share some of the key tenets of our investment process.