|Event Driven Strategy Overview|
|Credit "Equity" Investing|
| Deep Value/Equity Special
|Cash Recovery Investments|
Corre is a deep value, event driven investment manager focused on generating strong risk adjusted returns by investing across the capital structure in an opportunity set that includes turnarounds, special situations, and liquidations. Corre focuses specifically on underfollowed middle market companies experiencing fundamental change and looks for situations where these changes, either positive or negative, temporarily distort security values of these companies. These distortions potentially allow for an attractive investment entry point for Corre as the market initially struggles to accurately measure and price in the impact of these changes. In its investment process, Corre seeks not only to find such opportunities but also to identify catalysts that will lead to a repricing of these securities back to fair value. In each situation, Corre will analyze the entire capital structure to determine the optimal security to invest in from a risk-reward perspective. Investments fall into three broad asset categories: equities, credits and trade claims. To mitigate risk, Corre will balance its long exposure using lower volatility “cash recovery” investments (see below) to offset some of the higher beta long investments, as well as a dedicated short book.
Corre looks to identify credit instruments including distressed bonds, busted converts, and middle market bank loans where the investment offers equity upside but the protections and remedies of being a creditor higher in the capital structure. The investment can have the additional advantage of being current pay, enabling the ability to collect income while it awaits the turnaround or upcoming catalyst. In spite of the credit security offering more downside protection, Corre’s process on a credit investment that fits this description will be very much an equity-oriented analysis focused on the business’ earnings and cash flow prospects, future competitive positioning, and valuation with the intention of evaluating the instrument’s margin of safety.
Corre looks for companies that are significantly undervalued as a result of change occurring at the company or in the industry in which it participates. Corre’s strategy is to find companies where future earnings are materially underestimated by the market because the business or industry is in the midst of a transformative restructuring or transition. Corre focuses specifically on companies with high free cash flow yields and tries to avoid value traps such as businesses in secular decline or ones with a deteriorating competitive position. In addition to deep value event driven opportunities, Corre focuses on levered equities, post-reorganized equities, and other special situations including spin-offs and split-offs.
Trade claims are unsecured claims arising from a debtor’s failure to pay accounts payable or other obligations owed prior to a Chapter 11 filing. As a niche area of the credit markets, trade claims represent an especially compelling opportunity set as they allow investors including Corre to build positions in bankrupt situations at potentially sizable discounts to where other unsecured debt may be trading. The Corre team has several decades of experience in trade claims – with wide sourcing capability and in-house operational infrastructure – in the trade claim marketplace since Corre’s inception in 2009.
Across asset classes, Corre targets specific investments with low correlation to the overall market, thereby reducing overall beta. Corre refers to such investments as “cash recovery” investments because in each case the underlying instrument will recover cash. Examples of cash recovery investments include trade claims that recover cash (as opposed to claims that have an equity recovery) and equity/bond stubs. In many cases, cash recovery investments are the result of a company sale or liquidation. Given their inherent nature and lack of correlation to the market, these investments do not require any type of hedge. As a result, Corre emphasizes a healthy exposure to these long investments as they offset other higher volatility long positions, reducing overall market risk.