How we work with organisations once they've raised capital

The vast majority of the investments we’ve promoted to date have been repaid on schedule. We’ve raised over £200m for our clients and have experienced a 4.1% capital default rate to date, meaning that only a small proportion of the total capital raised was not repaid to investors when it fell due. Of course, some of the investment we have raised more recently has not yet fallen due for repayment, but the overall trend is nevertheless one of infrequent default.

Occasionally an organisation underperforms, and this can put repayment of the investment, or the interest on it, in jeopardy. So what is our role when this happens and what steps can we take to minimise loss to investors?

Our role is limited to raising capital and when successfully achieved, our only formal engagement with the issuers is that of registrar. This is an administrative role to coordinate the payment of interest, capital, or dividends between the organisation and its investors and to help ensure annual reporting obligations are met.

For secured bonds, where Triodos Corporate Officer Limited (a Triodos group entity) is engaged as security trustee, we hold an additional role but this is also administrative. In simple terms, the role of the security trustee is to notify each of the bondholders of any continuing event of default, consult with the bondholders to determine the action to be taken in relation to such default and, where appropriate, to take steps to enforce any security held.

Whilst we might not have a contractual obligation in the event of a default, we want to do what we can to deliver the best possible outcome for investors. For us, this starts with robust due diligence before an offer is structured and promoted to investors. This cannot prevent underperformance during the term of a multi-year investment, but it is intended to ensure we are confident that the organisation is in a financially robust position when the capital is raised and based on reasonable forward-looking assumptions is likely to meet future obligations. We ensure that the risks we identify are presented fully and transparently to investors.

Our due diligence when issuing a bond is typically focused on:

• Ensuring that the management team and its board are who they say they are.
• A review of past financial performance including annual accounts and most recent management accounts.
• Ensuring that the organisation has prepared a set of financial forecasts based on their forward-looking market, operating and financial assumptions.
• An assessment of the organisation's ability to meet its capital and interest payment obligations under the forward-looking assumptions, including various sensitivity scenarios, such as in the event of underperformance.
• A review of the mission and ethos of the organisation and assessment of the environmental or social impact being delivered.
• A review of the management team and the governance structure to assess whether this appears appropriate for the organisation.
  
  

  When we are made aware of a trading issue, imminent breach of obligations by the issuer, or pending payment default during the term of an investment then, we focus on trying to support the issuer to prevent a default and to minimise the prospect of loss for investors.

  
  

  In practical terms, this might involve helping the issuer to produce up-to-date financial forecasts and a revised payment schedule to present to investors for their consideration and approval. It may be that we work with the leadership team to map out some strategic options, to identify the best way forward and to present the recommendation to investors. For example, sometimes a breach of obligations may entitle bondholders to a higher interest rate until the breach is remedied or entitle the investors to be repaid in full immediately. However, this may not be in the best interests of the bondholders as it might place additional financial pressure on the organisation. We might, in that situation, look to broker a solution that limits the impact, even if it means a delay in paying funds to those investors.

  
  

  In the rare event that a business’ insolvency is unavoidable and falls into the professional hands of an insolvency practitioner, the practitioner would then take over and communicate directly with investors.

  
  

  Like any investment, investing in charities, community vehicles and impact-focused privately-owned businesses carries risk for investors. Presenting these risks transparently is a key part of our responsibility when promoting investment opportunities. Whilst we cannot mitigate or prevent all losses, we can ensure a robust due diligence process pre-launch, and even with limited contractual powers, we do seek to help as best we can to navigate challenges as they arise to reduce risk for investors.