Assertion Not publicly verifiable
TRA issuers average $400M+ in EBITDA with under 2x leverage
“I think the item across the industry that is not well understood is that they are oftentimes IG or near IG names, and they oftentimes are large scale and with access to public markets. And so on average, we see the industry being approximately 400 plus of EBIT…”
Assertion Not checkable as stated
Step-up TRAs can absorb 80% earnings drops without payment cuts
“Where we are more focused on is the step-up TRA, primarily because for many of the names that we are underwriting, they can see almost a 60 to 80% drop in their earnings metrics, might that be an EBITDA-oriented metric, and see no changes to their overall paym…”
Insight
Public equity investors fail to properly value corporate tax assets
“It's primarily a function of the fact that public equity investors oftentimes don't ascribe much, if any, value to tax assets. If you think about a business, they might look at it on a revenue growth basis or an EBITDA multiple, both of which don't capture the…”
Insight
Creating TRAs obstructs valuation realization for Master Limited Partnerships
“MLPs trade at such a premium because of the valuation Metric that they are oriented towards, that the creation of a TRA would actually be an obstruction to the realization of that overall value.”
Insight
VCs underappreciate tax assets by prioritizing growth over profitability
“Venture capitalists who back these companies oftentimes don't fully appreciate the value of tax assets because many of the corporations are not oriented to being profitable. They're more oriented towards growth. And as such, the adoption in the venture capital…”
Insight
TRAs resemble early 2000s pharma and 2010s music royalties
“It reminds many of what pharmaceutical royalties were in the early 2000, but whereas where musical royalties were in the 2010. Long data, annuity-like cash flow streams.”
Insight
NOL TRAs are highly correlated to underlying company economic performance
“Net operating losses are incredibly challenging for us to underwrite because our entire value prop to many of our investments were endowments and foundations is that we seek to deliver an uncorrelated return. A net operating loss TRA is incredibly correlated t…”
Insight
Tax assets are never lost but only deferred, impacting IRR, not MOIC
“Often the one thing that people fail to understand is you never lose a tax asset, you merely defer it, which has the impact on your IRR, but not necessarily changing your MOIC on an opportunity.”
Assertion Contradicted
Domain complexity prevents intermediaries from operating in the TRA market
“I would say there are no intermediaries in the space that we deal in as a function of a number of things. Domain expertise as well as the size of each underlying opportunity prevents many intermediaries from engaging in earnest on this space.”
Disclosure
Parallaxes Capital uses personalized athlete Cameo videos to source TRA deals
“We also have done things such as cameos, where we have sought to understand who their favorite sports team, might that be college or pro, and by doing so, picking their favorite athlete and sending them a personalized cameo with that athlete, suggesting that t…”
Insight
TRA profitability requires underwriting 15-year corporate survivability
“For us, seven years is oftentimes the window through which we receive the majority of our cash flows. But in order for us to make not just a return of capital, but a return on capital, we really need the year eight through 15 cash flows to have a profit. And s…”
Insight
The issuing company itself is the primary competitor for its tax assets
“Our biggest competition that has always been there It's not a third party. It's really the company itself. They have not only the lowest cost of capital, they also have asymmetric information even relative to us as it pertains to what they view their tax asset…”
Assertion Not checkable as stated
Regulatory tax changes would harm major asset classes before impacting TRAs
“All we are is a factoring items that have existed in tax code for almost a hundred years and are protected by lobbies, including the real estate lobby. We fundamentally follow the same principles that many of these that have been well Honed in tax code, and so…”
Disclosure
Parallaxes Capital's portfolio includes Shake Shack, RE/MAX, and Duff & Phelps
“Names in our portfolio that some might recognize include the likes of a Remax, a Shake Shack, a Duff and Phelps.”
Assertion Supported
TRAs are primarily created by private equity for their portfolio companies
“It's primarily done by private equity firms in the context of their portfolio companies, and it runs the gamut of industries from the likes of Bumble to GoDaddy all the way to Shake Shack, my personal favorite.”
Assertion Partly supported
Up-C TRAs originated from the 1980s Taubman Up-REIT structure
“This technology really came from the real estate world from the up REIT. The first up REIT was created in the 19 eighties via Taubman shopping centers, and subsequent to that T.R.A.s inherited that technology when corporations started going public.”
Assertion Supported
The 2021-2022 IPO/SPAC boom drove a surge in VC TRAs
“As a result of the flurry of both IPOs as well as SPACs in 21 and 22, there was a significant uplift in terms of number of TRAs created that were shared by both growth equity firms as well as venture capital firms”
Assertion Supported
The TRA market opportunity grew from $7B in 2017 to $30B
“In 2017, the market opportunity was, call it, seven billion dollars on the back of euphoric equity markets, and more importantly, adoption by private equity sponsors. That number is now closer to thirty billion dollars.”
Assertion Contradicted
Between 25 and 40 companies go public with TRAs annually
“So on an annual basis, there are, call it, 25 to 40 IPOs with TRAs, depending on the IPO market.”
Assertion Supported
TRAs sit as unsecured obligations behind debt but ahead of equity
“It sits behind indebtedness, so it's an unsecured obligation ahead of preferred equity as well as common.”
Assertion Supported
Companies typically pay 85% of realized TRA tax savings to holders
“The company would file its corporate tax filing if and when they filed that taxes and they are able to utilize the deductions that a TRA assets are able to deliver them, they would then pay 85% of those savings to the holder of the TRA.”
Assertion Not checkable as stated
The average TRA investment opportunity ranges from $15M to $20M
“The average opportunity is between 15 to twenty million dollars.”
