Hi AllHave been reviewing the drivers of Victory Park Capital...

Hi All

Have been reviewing the drivers of Victory Park Capital (VPC) FUM and SPAC’s recently and have written the following after further research, discussions and other findings. In addition, @gregfloorworld think you asked what the FUM impact is for announcements when VPC providing funding facilities. Keen for feedback as below is my understanding.

To begin with, recent VPC announcements for debt funding are:

	Deal #	Deal Date	Deal size	Company	Notes
1	1	20/05/2021	$USD200 Million	factory14	Credit facility – upfront FUM for investment
2	2	04/05/2021	$USD400 Million	Razor Group	Credit facility – FUM drawn upon as Razor lends to companies that want to buy Amazon focused businesses
3	3	21/04/2021	$USD200 Million	Mass Mutual	Through VPC Speciality Lending vehicle in the UK (listed as VSL:LSE) Credit facility – FUM drawn upon as required for lending
4	4	28/01/2021	$USD100 Million	DAVE group	Credit facility – FUM drawn upon as required for lending
5	5	24/11/2020	$USD100 Million	Kredivo	Credit facility – FUM drawn upon as required for lending
6	6	2/11/2020	$AUD100 Million	Zip	Credit facility – FUM drawn upon as required. VPC already provide $AUD200 Million Credit Facility

31/03/2021 VPC FUM is $USD3.580 Billion.

31/12/2020 VPC FUM is 4USD3.487 Billion.

This is an increase of $USD93 Million in FUM for the last quarter. With announcements made prior to the end of each quarter, there is a mixture of immediate FUM required and agreements where VPC will provide FUM over a period of time until fully exhausted.

From an Australian perspective, look at the drawdown cycle for Zip. Zip originally agreed to a facility of $AUD108 Million in November 2015. This increased to $AUD200 Million over 5 years, until they requested an additional $AUD200 Million in November 2020.

From a US perspective, look at the drawdown cycle for DAVE group, $USD110 Million funded in June 2018. This is a drawdown over 2.5 years, which is on par with Zip’s need for $AUD200 Million requirement over five years, but in USD. I would expect DAVE will grow at a much faster rate in the future compared with Zip due to its US market participation.

Ref: https://www.victoryparkcapital.com/news/2019/06/18/banking-for-humans-dave-raises-110m-launches-credit-building-banking-to-3-5m-users/

Why is this important? VPC make agreements with companies to provide credit facilities. When these facilities are agreed to, VPC will then go and seek FUM from investors (guaranteed allocation to earn). There is no urgency to raise FUM as credit facilities are not fully utilised immediately. If VPC fall behind in raising FUM, then they have debt facilities on call that they can use to fund credit facilities in the short term.

In simple, the deals announced are what VPC’s FUM will eventually become, rather than immediately contribute to the FUM figures. In looking at the above table and applying the rate which Zip and Dave utilised facilities, lets assume there is a 20% drawdown of announced deals each year (therefore 5% per quarter). The agreements in turn grow FUM on an annual basis. The growth in FUM will depend on whether VPC is an exclusive credit provider or not.

A calculation would be as follows, dependent on the market:

1) Amount announced

2) Drawdown assumption based on market participating in (AUS/ASIA is for five years, US and UK is for three years)

3) Annual Increase

4) Quarterly increase in FUM = (Deal size/3 or 5yrs)/4 qtrs.

5) Assumed Earning rate of 1.5% per annum

6) PAC’s 24.9% share

	#	Deal Date	Deal size		Annual Increase	Qtrly FUM increase	Annual earnings	PAC annual share
1	1	04/05/2021	$USD400M	Razor Group (US)	(400M/3) = 133.3M	/4 = 33.3M	133.3M x 1.5% = $2M	$498k
2	2	21/04/2021	$USD200M	Mass Mutual (UK)	(200M/3) = 66.67M	/4 = 16.67M	66.67M x 1.5% = $1M	$249k
3	3	28/01/2021	$USD100M	DAVE group (US)	(100M/3) = 33.3M	/4 = 8.33M	33.3M x 1.5% = $500k	$124.5k
4	4	24/11/2020	$USD100M	Kredivo (ASIA)	(100M/5) = 20M	/4 = 5M	20M x 1.5% = $300k	$74.7k
5	5	2/11/2020	$AUD100M	Zip (AUS)	(100M/5) = 20M	/4 = 5M	20M x 1.5% = $300k	$74.7k

In summary, I believe the previous 5 deals should be contributing an extra $1.029M to PAC’s bottom line annually (keep in mind this is compounded because FUM is growing every year).

This is only new deals too. Historical deals will be contributing the same, unless they expire (I am uncertain how to get expired deal information – happy to directed by anyone, will gladly work out impacts).

Assuming total contribution to EBITDA for these deals is $1.029M, and possibly 823k in NPAT (@20% tax rate) or an extra 2c in EPS.

Economics of Special Purpose Acquisition Companies (SPAC’s)

SPAC creation and investment are part of VPC’s Special Situation Funds and the value at risk is not measured in FUM, nor is it VPC’s capital. The following information is what I have received from PAC management and interpreted in my way (again keen for feedback from anyone). This is also different to what I have posted previously (improving as I get a better understanding of these investments – from PAC management and other posters here on Hotcopper).

VPC uses the Special Situation Fund money to sponsor a SPAC – typically $USD5 Million. This capital is essentially a bet that the SPAC can find a company to merge with (one of VPC’s current customers or another entity), VPC’s investors have entrusted management to invest on their behalf.

The return for VPC is in performance fees of an assumed 15% of the profit. So the economics of each SPAC is:

1) $USD5 Million at risk to do all the paperwork (legals, accounting, capital raising fees, etc)

2) 2% equity ownership of the newly listed company

a. Bakkt will be a $USD2.1B listed company

b. The Special Situation Fund stands to make $USD42M

c. Assumed VPC performance fees 15% of $USD42M = $USD6.3M

d. PAC’s 24.9% earnings is $USD1.57M or $AUD2.039M @77c AUD/USD exchange rate (this is revenue, but is likely to increase EBITDA, not NPAT)

3) 1% equity ownership of the newly listed company (https://www.sec.gov/Archives/edgar/data/0001841408/000119312521183575/d165916dex992.htm)

a. DAVE will be a $USD3.951B listed company

b. The Special Situation Fund stands to make $USD39.51M

c. Assumed VPC performance fees are 15% of $USD39.51M = $USD5.9265M

d. PAC’s 24.9% earnings is $USD1.48M or $AUD1.92M @77c AUD/USD exchange rate (same as above, EBITDA, not NPAT)

4) Total potential of these deals will be to add $AUD4M in EBITDA, possibly about $AUD3.2M in NPAT (@20% tax rate) or an extra 6c in EPS (this is a change from the 15c I thought from Bakkt SPAC previously and would be attributable in the next financial year)

VPC is a good company to raise SPAC’s as they have a backlog of funding requests from FinTech companies and have a series of investments in FinTech start-up’s that would look to go public – NYSE or NASDAQ. This will likely see the other two SPAC (VPCB and LNFA) reach deals this year.

Keep in mind that VPC’s Special Situation Fund was an early investor in DAVE too, so is likely to realise some additional performance fees, assume another 3c extra in earnings per share from NPAT.

Summary

To conclude on the VPC news announcements of credit facilities are incrementally good, with each announcement contributing short terms earnings. The last five credit facility deals of $USD900M will contribute 2c each year the deal exists, Year 1=2c, Year 2=4c through to Year 5=10c EPS. It takes time and will eventually grow into consistent EPS, dependent on the drawdown rate of each credit facility.

Regarding SPAC’s, EPS contributions are one off earnings. They are Special Situations where VPC do not put the businesses capital at risk, it is all from the investment fund.

Considering the two SPAC mergers will contribute from 6c per share, there is also the potential upside of capital gains, which I have not accounted for. I am not certain whether the Special Situation Funds will earn based on announced deal size or whether it will be base on eventual realisation of capital gains (maybe two fees generated).

As always, based on my information and would love some feedback. Feel free to correct anything that I have said above.

Best of Luck

Lost