Our Special Situation Credit team identifies and invests in unusual lending opportunities with asymmetric return potential. We often engineer creative structures that both reduce risk while optimizing returns for investors and match timing, situational and cost of capital dynamics for borrowers. Ideally, this creates “win-win” scenarios for both companies and investors.
An example of this creativity was pioneering some of the first barrel-focused lending vehicles in the American craft whiskey space. In supporting a client in the financial services segment of our business, we observed banks routinely passing on lending to brands based upon barreled whiskey inventory. Given that filled whiskey barrels have historically appreciated at a rapid rate and given that rapidly growing brands are often starved for working capital to expand inventory expansion, we initially created a series of special-purpose vehicles to lend money to craft brands with interest rates in the teens. Though this may be a punitive rate in some industries, given the rapid appreciation of barrels, this became an attractive value proposition for both brands who viewed it as a lower cost of capital than equity and for investors who benefited from an above-average return on capital and a rapidly declining loan-to-value ratio as the barrels appreciated. Add in the robust secondary market for trading barrels and this became a strong niche lending platform for the craft whiskey industry and for Venture First’s investors. We quickly expanded from special purpose vehicles to funds and have now deployed over $100M in the space.
The cannabis industry provided another opportunity for innovation. We were approached by dozens of producers looking for equity investment or lending options, though we avoided the space due to ambiguous federal and state regulations around moving money from state to state. However, we found some producers with large grow facilities representing significant real estate value. By transferring these parcels of real estate into separate legal entities not involved in marijuana production, we are able to offer them mortgages with rates in the teens that solved their needs while providing strong returns for our investors.
Other sample portfolio transactions include an eco-tourism development with guaranteed public funding in need of short-term capital; a growing ecommerce company with considerable inventory to back a credit facility; and a variety of specialty equipment manufacturers with valuable industrial and construction machinery that holds its value and is easily transferable to other customers.
We are now investing out of our Alternative Asset Income Opportunity Fund I, a yield-focused fund lending in a variety of industries. Core industry verticals include industrial machinery and equipment, real estate, defense, and various asset-backed and mezzanine financing structures. We look for creative structures that unlock value for companies and drive returns for our investors.
Whiskey Capital provides barrel financing to craft and mid-sized whiskey brands for both new fill and aged barrel inventory. Our distiller-focused solutions have helped over a dozen growing brands improve cash management, grow inventory, and fuel growth.
Whiskey Capital II builds on the success of Whiskey Capital by continuing to provide tailored barrel financing solutions to craft and mid-sized whiskey brands. By leveraging the momentum from its sister fund, this fund is designed to expand capital to growing clients.
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