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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…”
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…”
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.”
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…”
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…”
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.”
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…”
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…”
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…”
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.”