Peter Polanskyj, senior md and head of structured credit at Obra Capital, answers SCI's questions

Q: Vida Capital recently rebranded to Obra Capital (SCI 16 December 2022). Could you explain why this signifies an important milestone for the firm?
A: Rebranding was a natural step for the firm. Vida – which means ‘life’ in Spanish - was historically a life settlements investment firm. However, the firm is now focusing on diversifying its investment mandate, so it made sense to reflect that in its name. Obra translates as ‘construction’ or ‘work’ and we are working hard to build a further diversified firm and to putting focus on new (for us) parts of the market that themselves require hard work to be successful.

Q: What are the drivers behind the firm’s expansion into structured credit strategies (SCI 6 April 2022)?
A: Our approach to life settlements involves both quantitative and qualitative aspects, including the origination and servicing of assets ourselves. We hope to bring this approach to other spaces as well. Given our experience in insurance special situations, liquid structured credit is a natural add-on to our capabilities.

Q: Which structured credit sectors are currently attractive from your perspective and why?
A: We’re deploying across a variety of sectors, including prime consumer ABS, single-asset/single-borrower CMBS and CLOs – predominantly at the top of the capital structure, although we’re beginning to look further down the capital stack. We’re seeking opportunities where credit fundamentals play out at wider levels and could potentially start looking at subprime and esoteric ABS too. We’re seeing dispersion of loan pricing and performance, due to the current macroeconomic environment, and expect more to come there.

There are many asset classes where we believe we can differentiate ourselves in terms of underwriting and/or origination, especially in underserved areas where there is a lack of capital. Our aim is to be thoughtful and build out different views on risk, based on our own methodologies. Even in more liquid segments like CLOs, we’re hopeful we can differentiate ourselves around structural details like call optionality, for example.

We have a US$500m book of investment grade multisector structured products and ABS, which means we can easily navigate the market and reallocate where necessary. As a smaller firm, we focus on areas where we can go a bit deeper to generate alpha and face less competition. We expect this type of AUM to grow considerably over the coming quarters and given our deep experience and relationships, we feel comfortable that our approach is scalable.

Q: In which other ways does Obra seek to differentiate itself in the structured credit space?
A: The press release announcing our recent acquisition – via a joint venture with R&Q Insurance Holdings – of the legacy liabilities of MSA Safety is one example. The JV won the tender for the transaction because it can provide both sides of the equation: R&Q will provide claims and management services for the portfolio, while Obra will provide investment management services.

We have an insurance-type balance sheet with a multi-year investment horizon. As such, we can achieve better returns with patient capital and are paid a liquidity premium.

We’re looking to repeat similar transactions to the one with R&Q, in which we can bring opportunistic capital to bear, as well as asset management expertise.

Q: What is your outlook for the structured credit market in 2023?
A: The major driver of performance in 2022 was the re-rating of the risk-free rate and the consequent repricing of liquidity premiums. The spread action reflected the change in market liquidity, which became more precious.

Strong price action to start the year seems to be a function, among other things, of the markets’ expectation of a reversal of the risk-free rate. With that being said, we remain cautious as the effects of deteriorating consumer balance sheets and top and bottom line pressures on corporates will likely cause volatility in credit spreads as the year progresses.

We like approaching the current market environment from a structured products lens, as securitisation structures generally allow for a more tailored approach to market views. The ability to adjust duration or add varying levels of credit enhancement offer extra elements of security over non-structured markets.

For us, it’s simply identifying the best valuations across the capital stack and figuring out the right risk/reward profiles. We benefit from having a capital base that offers the flexibility to pick the right spots and pivot accordingly.

Corinne Smith