The Ohio Police and Fire Pension Fund has committed $50 million to the second iteration of Proterra Investment Partners‘ credit fund, endorsing its strategy of co-leading alongside the US Farm Credit System.
According to a memo contained within materials from OP&F’s late February investment committee meeting provided to Agri Investor, Proterra Credit Fund 2 targets a net IRR of 13 percent through provision of $10 million to $50 million agribusinesses loans with interest rates of between 10 and 12 percent on terms of up to five years.
“Proterra’s competitive advantage is its relationship with and collaboration with the Farm Credit System, a national lender and Government Sponsored Entity that provides highly attractive financing to agriculture-related businesses throughout the US,” investment staff of $19.4 billion OP&F wrote. “By joining FCS in the lending process, Proterra is able to offer more competitive loan rates while benefiting from FCS loan sourcing, underwriting and conforming loan standards.”
Proterra began a partnership with FCS in 2018 focused on unitranche loans under which borrowers are presented one document containing first-out and last out traches, OP&F’s memo explained. Minnesota-headquartered Proterra retains the higher-yielding, last-out riskier tranche while allocating the less risky first-out tranche to FCS, a network of about 70 borrower-owned lending institutions that manage $300 billion of rural credit that constitutes about 45 percent of the US market.
Proterra plans to lend alongside FCS for 80 percent of its loans and has established active relationships with 15 of the largest institutions within the network, according to the memo. Twelve loans with those firms account for 85 percent of the transactions from Proterra Credit Fund 1 and 2 to date, it added.
Proterra Credit Fund 2 will focus its 20-25 loans on relatively small and branded private food and ag related businesses with up to $50 million in operating profit. Plans call for a focus on 20 segments of US agribusiness that include natural sweeteners, fruit processors, produce distribution, bakery products, beef processing, plant-based protein products and others.
“Approximately 70-75 percent of loans may be with companies backed by private equity firms, which may reduce default risk and improve recovery rates in potential bankruptcy cases,” according to the memo.
Proterra’s first credit fund closed on $200 million in March 2019 after drawing commitments of between $5 million and $85 million from state and corporate pension plans, funds of funds and insurance companies. According to the OP&F memo, that vehicle has invested in 11 borrowers and realized $37.3 million in principal repayments and scheduled amortization.
Proterra reached a $150 million close for the second fund in September with commitments from LPs that included the Teachers Retirement System of the State of Illinois. The firm is targeting $400 million to $500 million for the vehicle, which has already funded three investments totaling $53 million, according to OP&F.
The memo highlighted Proterra’s steps to align interests with investors, including a $4 million investment by management and a compensation scheme based on performance of Credit Funds 1 and 2, not the firm’s overall assets under management. In addition, it said, Proterra will not receive its 20 percent carried interest until after investors have a 7 percent net return.
Proterra spun out from Cargill in 2016 and managed $3.6 billion as of March 2021.