Updated: May 23, 2021
The Seagate Global Resources Box Recycling Smart Loan embodies my idea of what ESG investments should be: low risk, high return, socially responsible, intelligently constructed.
Seagate Global has expanded its ESG alternative fixed income capability with the acquisition of Harbor Green Recycling to create safe and stable cash flows. The recycling team, now Seagate Global Resources, has proven its strategy as low risk since 2014. It simply buys recycled boxes in the US from waste management companies and sells them to large Chinese paper companies under irrevocable L/C's as Buyer's Agent. The results?
Seagate Global Resource's Team Achievements Since 2014
Summary of the Recycling Smart Loan
Seagate Global has improved the strategy by tightening governance and risk management, and added a little of its structuring magic. Lenders do not use cash. They simply have their bank issue a Standby Letter of Credit to one of the largest US box recyclers to cover the gap of <30 days it takes Industrial and Commercial Bank of China to process payment for boxes delivered to one of China's largest companies under an irrevocable documentary Letter of Credit. The lender is paid 10% for the 1 year SBLC on the face amount (2.5% paid quarterly in arrears). $1 mm to $20 mm. The main risk is a default by ICBC on its Letter of Credit. This has never happened, and unlikely in the next year based on the fact that ICBC is the world's largest bank; has Moody's highest short-term credit rating, Prime-1; and long-term investment grade ratings from both Moody's (A1) and S&P (A). (There are other less substantial risks which Seagate identifies and actively manages.) Seagate will co-operate with brokers. (See Seagate Global for more details and discussion of risk.)
Seagate Global is an Asia-Pacific focused merchant banking and investment organization founded in 1996. It has pioneered Smart Loans: alternative fixed income instruments designed to be low risk with high return in socially responsible strategies in inefficient markets such as affordable housing, solar energy, PPE's and now box recycling, which is critical to help manage the US waste crisis.
The Seagate Global Resources Box Recycling Smart Loan is a tangible example of Lawton On Markets' contention that it is possible to produce higher returns with lower risk in strategies that are socially responsible. Ten percent is above the long-term average annual return for US equities and fixed income, and with much less volatility. Helping to recycle boxes reduces the number of trees cut down, reduces power and water consumption, reduces the load on limited landfills, creates jobs and is sustainable. Lenders keep their current portfolio/real estate/assets along with the returns, and simply use their assets as backing for the SBLC, plus earning 10% from the SBLC.
The result for SBLC providers? Earn their current portfolio returns plus 10% for nominal additional risk while helping reduce the crisis in US waste. That's Smart.
(Disclosures: This is neither an offer to buy or sell securities. Past performance is no guarantee of future returns. Lawton is CEO of Seagate Global Group, holds positions in Smart Loans both of which may entail conflicts of interest which are hereby disclosed. LoM is not offering Smart Loans for investment. Smart Loans entail risk, and SBLC providers are subject to loss of principal under certain circumstances. Statements in this blog are the opinions of the author for which he accepts no responsibility to third parties. Those interested in Smart Loans should contact Seagate Global Group directly.)