Combining his experience as a mortgage broker and exempt market dealer, Peter Johannes formed SecureCare Investments a little over two years ago to offer a high security bond providing monthly cash flow and significant yields to Canadian investors.
“SecureCare Investments’ bond is a stable investment, particularly for baby boomers entering retirement,” Johannes told The Canadian Business Journal, “Many baby boomers are cash poor but house rich. The original intention was to create a bond that would be reliable enough to allow them to take money out of their house, to invest it and earn a much higher rate of return, with a small tax advantage. Our experience has been, however, that many investors are using SecureCare Bonds simply to rescue their savings from declining mutual funds and unpredictable markets.”
Searching for cash flow assets that would be beneficial to bondholders, Johannes found Trade Finance Solutions (TFS), based in Markham, Ont. TFS is a commercial factor and provides receivables financing to companies, usually small- to medium-sized enterprises (SMEs). TFS financing bridges the payment delay that SMEs suffer when they accept 30 to 90 day payment terms from their much larger customers. TFS is a leading Canadian company in this form of financing and has international scope. Having handled well over $230 million worth of contracts over the last six years, with no bad debts, TFS has demonstrated that they know what they are doing and are a perfect source of cash flow assets for SecureCare bond holders.
For a SME to sell its products to major conglomerates like Walmart or Costco, the retail model sees products put on store shelves and sold before payments to the supplier are ever made. These SMEs are sometimes required to wait months for payments on their sales, potentially causing incredible stress to their operations and ability to process new orders. Statistically, about $2.6 trillion of global factoring occurs every year, and the industry continues to see about eight per cent in annual growth.
“Despite a financing cost as high as three per cent a month, an SME’s bottom line will dramatically improve if they benefit from the cash flow advantages that factoring provides,” Johannes summarized. “When the economy is good, SMEs pop up like mushrooms after a rain and many rely on factoring during their growth period. When the economy is down, bank financing can dry up, customer terms get longer and even larger companies turn to factoring. Whether it’s an up economy or a down economy, factoring offers solutions and, as a business, is very profitable.”
Further separating TFS and pushing it to the top of the factoring pact is that, using mainstream insurance companies, TFS insures its credit receivables contracts in order to guarantee payments due from the major retailers, companies and government agencies who owe on receivables for goods and services already delivered. Credit insurance protects TFS cash flow against payment delays or defaults and, therefore, also indirectly safeguards the interest payments and investment capital of SecureCare bondholders. A testament to the quality of their underwriting, risk management, and collection skills, TFS has not needed to make an insurance claim in the last four years.
Exempt Market Opportunities
SecureCare Investments was created to hold a large and growing pool of insured credit receivable contracts and encourage participation by eligible Canadian investors. SecureCare Bonds are offered in the exempt investment marketplace, where securities are not sold by prospectus, but instead available through exempt market dealers by an offering memorandum. SecureCare Investments is able to offer one-, three-, and five-year bond terms paying from 8 to 8.5 per cent annual interest. SecureCare Bonds are also eligible for self-directed TFSAs, RRSPs, and all other registered savings plans.
SecureCare Bonds represent a potentially greater opportunity for an investor to do his or her own investment management and due diligence than most equities or funds. Although these bonds are not approved by any securities regulator, SecureCare Bond investors can talk anytime directly with the company principals, look at the bond assets and easily monitor investment gains from monthly or accruing interest payments. The pool of insured credit receivables that back SecureCare Bonds also generally perform independently of the equities markets, providing a respite for investors from the market roller coaster.
“The assets we buy on behalf of our bondholders produce regular cash flow, so in many cases our bondholders are either offsetting some leveraging or they earn fixed incomes and want interest income,” Johannes detailed. “We offer one-, three-, and five-year terms, so there is considerable flexibility in short- to medium-term investments with a very definite exit plan. Our strategy is very simple, stable, and transparent.”
By the Numbers
Standing at $8 million in the exempt market, with a $50 million cap, SecureCare Investments is moving strongly in the right direction.
“Most people don’t know what factoring is, even though it represents a critical source of financing that supports the growth of Canadian jobs created by SMEs, as well as funding much of the goods and services consumers rely on,” Johannes explained. “We offer a unique opportunity for ordinary investors to get into a space that typically is the domain of large institutional investors or banks. We’re very proud to be able to bring this kind of high quality investment, backed by exceptional assets, to individual Canadian investors.”