Fair Harbor Capital Overview
Fair Harbor Capital, LLC is a private boutique vehicle chartered to maximize returns from distressed-debt and special-situations investments for its members.
Fair Harbor Capital evaluates and purchases unsecured and administrative bankruptcy trade claims.
These claims include:
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pre-petition trade claims;
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lease rejection claims;
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rejected contract claims;
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post-petition claims;
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reclamation claims; and
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perfected lien claims.
Fair Harbor Capital strives to provide equitable returns commensurate with risk, while simultaneously maximizing liquidity for those selling their distressed holdings. The firm utilizes only internal capital augmented with lines of credit from private sources to fund its transactions.
Fair Harbor Capital’s personnel draw on their broad experience and technical proficiencies to provide exemplary personalized service to each transaction. Members' core competencies in finance, bankruptcy procedure, and cash flow management are applied to each specific investment opportunity.
Fair Harbor Capital establishes a valuation before acquisition; then, after acquisition, the company regularly reevaluates the investment to determine whether the asset continues to fit the investment objectives.
An extensive back-office operation with a fully integrated IT system supports the purchase and management of these fragmented and often illiquid assets. For the most part, Fair Harbor Capital takes a purchase-and-hold approach to its portfolio. The assets are held until there are ultimate payouts, if any, on the claims from the applicable bankruptcy estates.
Fair Harbor Capital also considers other risk management and liquidity products, including high-risk factoring contracts for the vendor community as well as structured settlements.
Investment Philosophy
Fair Harbor Capital’s philosophy of investment is predominantly event-driven. Fair Harbor Capital seeks to maximize total returns by investing in trade claims in bankruptcy, factoring pre- or post-petition trade claims, and/or providing accounts receivable protection. Additionally, Fair Harbor Capital may arbitrage a firm’s capital structure by taking a long position on trade claims and a short position on distressed bonds traded in the public market.
Fair Harbor Capital seeks situations where a spread exists between the market price of a debt and its fundamental, intrinsic value. Fair Harbor Capital typically seeks investment opportunities at companies
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in bankruptcy — both Chapter 11 reorganization and Chapter 7 liquidation;
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with highly leveraged balance sheets; or
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with pricing miscalculations in the capital structure.
In these situations, the debt often trades at a discount to the enterprise’s intrinsic value due to the uncertainty inherent in restructuring and the illiquidity of the instrument.
Additionally, Fair Harbor Capital makes investments in situations where there is a lack of detail in the financial statements, low trading volume, unfavorable rumor, or other events that are not fundamental to the enterprise's intrinsic value.
Quantification of an organization’s intrinsic value starts with a peer-group EBITDA analysis and a multiple against Discounted Cash Flow. This is then adjusted down for the unknowns inherent in the distressing events including, but not limited to, litigation risks. The results are then applied to the corporate capital structure to determine individual asset value.
The Beta of the investment portfolio is reduced as investments are diversified by debtor, creditor, industry, and underlying stressing events. Generally, no one grouping is allowed to dominate the portfolio.
By offering fair-market-based pricing and transfer transparency, Fair Harbor Capital trades liquidity and safety for the upside inherent in distressed situations. Investments are typically held between six months and five years, but the duration can vary widely.
Investment Strategies
Event-Driven
These investments are selected based on an anticipated catalyst (industry-wide and/or company-specific). The underlying business plays little or no role in the objective and risks associated with the investment. Catalysts include bankruptcy, liquidations, litigation, in-court and out-of-court restructurings, regulatory events, legislative action, and asset sales. Both long and short positions are taken.
Special Situations
These investments are made in undervalued businesses or assets based on fundamental credit analysis, with specific attention to free cash flow and situations where the hard assets can be liquidated to meet the needs of the holder. Typical examples include future payments from insurers and the monetization of the future cash flow that is expected from insurance liquidation, gaming winnings, royalty streams, or litigation settlements, judgements or promissory notes.
Capital Structure Arbitrage
These investments capitalize on situations where the pricing of different types of securities within the capital structure of the same company becomes dislocated. In some cases, an overreaction to specific credit or industry news causes the dislocation. In other cases, the illiquidity of the debt instrument causes the dislocation. In still other cases, the causes may be global factors such as capital flows or world events.
Competitive Advantages
Speed
Investment decisions are made quickly because Fair Harbor Capital is a closely held corporation and decision makers are involved and accessible.
Experience
Fair Harbor Capital has managed distressed assets through multiple business cycles. Our personnel have core competencies in corporate finance and the legal bankruptcy process, coupled with extensive knowledge in privately traded instruments such as bank debt, trade claims, and rejected real estate leases. The diverse expertise of the members ensures that a full perspective of all the business, financial, and legal aspects related to distressed investment are considered and integrated in the analysis.
Reputation and Relationships
Fair Harbor Capital is well respected in the distressed industry and has established contacts, particularly among the various professionals and service providers. Our reputation and contacts, combined with our knowledge of the bankruptcy law and the bankruptcy courts’ procedures, enables the company to locate unique investment opportunities from traditional and nontraditional channels.
Proprietary Resources
Leveraging a proprietary historical database, a team of professionals with complementing expertise analyze each opportunity. The impact of variances inherent in distressed investing is assessed, and the resulting outcomes help quantify the value of the investment.
Automated
Fair Harbor Capital’s fully integrated infrastructure and IT architecture automates and simplifies the paper-intensive work of trading in distressed investments. The resulting savings is passed along to clients and facilitates efficient monitoring of the various investments.