1. PEGASUS Capital Inc
Pegasus Distressed Debt Fund
April 2015
Nancy Desrosiers
Azmat Farooq
Kevin Li
Mark Moskvitine
Claire Mu
Dennis Solomon
- 10165138
- 10164219
- 10141380
- 10164722
- 10162087
- 10164696
2. Disclaimer
This presentation is neither an offer to sell nor a solicitation of an offer to purchase any security
and may not be relied upon for investment purposes. The summary description and information
included herein and any other related materials provided to you are intended only for
information purposes. Prospective investors should rely solely on a confidential private
placement memorandum in making a decision to invest. These materials are confidential and
solely for the information of the person to whom it has been delivered and may not be
reproduced without consent.
4. Fund Overview
Fund Overview Fund Structure Strategy Risk Management AppendicesFund Overview
Fund Profile
• Fund size: $150M
• Target Sharpe: 1.5
• Target Return: 12-20%
• Based in Toronto, ON
• Distressed Debt Fund
• Oil/Gas industry focus
• Management fee of 2%
of AUM
• Incentive fee of 20%
• Investor redemption: two-
year lockup period
• Target investors: HNWI,
Seeders, Managed Accounts,
Fund of Funds
• Up to 80% of personal
assets in the fund
Fee Structure Investor Profile
5. Principals
Fund Overview Fund Structure Strategy Risk Management AppendicesFund Overview
• Earned a Bachelor degree in
Finance and Economics from
University of Toronto
• CFA Candidate
• Strong compliance and analytical
experience within a major bank.
• Earned Bachelor in Accounting
and Finance from Carleton
University
• CFA Candidate
• Past experience with BMO Global
Asset management in Mutual
Fund and equity research
Azmat Farooq
Analyst
Kevin Li
Chief Investment Officer
• CFA, CPA, Master of
Management and Professional
Accounting (Rotman)
• extensive operating and capital
budgeting, P&L management,
sales and margin forecast with a
multi-national company
• Over 10 years performance
auditing experience
Claire Mu
President
6. Principals
Fund Overview Fund Structure Strategy Risk Management AppendicesFund Overview
• Earned a Bachelor’s degree in
Finance and Economics from
Carleton University
• CFA Candidate
• Worked as an Analyst dealing
with Fixed Income investments
within Insurance industry.
Mark Moskvitine
Chief MarketingOfficer
• Earned a Bachelor’s degree in
Policy and Financial Management
York University
• CFA Candidate
• Significant research experience
and analytical expertise. Avid
athlete.
Dennis Solomon
Analyst
• Earned a Bachelor’s degree in
Business Administration from
Université du Québec à Montréal
• Chartered Investment Manager
• Has significant experience in
alternative investment and risk
management.
Nancy Desrosiers
Chief Risk Officer
7. Fund Structure
Fund Overview Fund Structure Strategy Risk Management AppendicesFund Structure
PEGASUS
Capital Inc
Administration
CITCO Fund Services
Investors
Prime Broker
BMO Capital Markets
Investment Manager
Auditor
KPMG
Legal
STIKEMAN ELLIOTT
8. Fund Strategy
Fund Overview Fund Structure Strategy Risk Management AppendicesStrategy
Distressed Debt
• Study current events that drive down
the value of a company’s securities
• Identify cluster of companies
impacted by the events
• Screen suitable issuers and securities
to implement trades
• Market inefficiency and above
average risk adjusted returns
• legal/regulatory constraints
• Lack of analyst coverage
• Lack of knowledge, skill, interest
and time to conduct the necessary
analysis
Opportunity
9. Fund Strategy
Fund Overview Fund Structure Strategy Risk Management AppendicesStrategy
Current Events
• Low oil price
• Junior oil and gas exploration and
production companies affected
• Otherwise strong candidates
underpriced by the panic
• Combination of top-down and
bottom-up analysis
• In-depth review of issuer operations,
creditors and financials
• Focus on Liquid space of distressed
debt
• Legal considerations (legal service
provider)
Proprietary Approach
10. Investment Thesis
• Impressive breadth of opportunity
• Cash flows of small-medium
upstream oil plays is increasingly
constrained
• Unable to meet debt obligations,
which affects their liquidity and
solvency debt can be bought at
discount
• M&A activity peaks during a limited
window as oil prices tend to recover
Fund Overview Fund Structure Strategy Risk Management AppendicesStrategy
13. Risk Management
Fund Overview Fund Structure Strategy Risk Management AppendicesRisk Management
Marginal, cost efficient risk management
• Risk budget of maximum 25% of fund profits
• We perform due diligence and monitor crude oil hedging
strategies already in place within the companies (Mercatus
Advisors-Energy hedging and trading)
We mitigate Operational Risk
• Counterparty due diligence and internal controls
14. Hedging Costs
Fund Overview Fund Structure Strategy Risk Management AppendicesRisk Management
We calculate the crude oil put option contracts value based on the number of barrels sold, assuming
a strike price of $35 and an option price of $160 (as advised by our energy risk experts at
Mercatus)
Our hedging costs represent $2M or 2.5% of the capital invested in the fund (including Mercatus
fee and trade execution). This is an optimal cost considering the hedging strategies already in place
within the companies.
15. Mitigating Operational Risks
Fund Overview Fund Structure Strategy Risk Management AppendicesRisk Management
Counterparty due diligence
• Ongoing monitoring process with our Prime Broker,
Administrator, Auditor and other stakeholders
Internal control
• Segregation of duties (Front, middle, back office)
• Business continuity plan with fully operational recovery site
and data backups
• Annual background check on employees
18. Key Fund Details
Term Sheet
Fee Structure:
Redemption:
Min. Investment:
Investment Objective:
Lockup:
Maximum Leverage:
Reporting:
Principals’ Investment:
2 / 20
Annually
$250,000
Absolute Return
2 year
2.5x
Quarterly/Event
80% of personal
assets
Auditor:
Legal:
Prime Broker:
Fund Admin:
KPMG
Stikeman Elliot
BMO Capital Markets
CITCO Fund Services
Sharpe Ratio:
Return Type:
Target Return:
1.5
Absolute
12-20%
Key Partners
Target Performance Metrics
19. Appendix B – Losing Trade
Fund Overview Fund Structure Strategy Risk Management Appendices
SandRidge Energy Inc
• Current Rating
• Investment
• Leverage
• Borrowing
• Loan Cost
• Interest
• Holding Period
• Bond Price
• Coupon
• Maturity
$20,000,000
2.0
$40,000,000
2%
800,000
2 years
$65.50
7.5%
2023
BB
BB+
BBB-
Yield Price Profit Return
7.46%
6.06%
4.62%
B 100.37
114.49
132.07
-$20.3M
-$11.7M
-$0.9M
-101%
-58%
-4.7%
Appendices
20. Appendix C - Hedging
Risk management-Example of EXXI internal hedging strategy
Fund Overview Fund Structure Strategy Risk Management AppendicesAppendices
