Issue No 27

At Pier, we provide credit facilities to specialty finance companies. Our      facilities are collateralized by portfolios of loans, advances,      receivables, or other contractual cash flows. We deliberately focus on      the sub $25 million space, which is considerably smaller than most asset      backed lending (ABL) facilities that typically start at $100 million.
      
Occasionally, larger funds pursue deals in our range. When they do, they      often take a shortcut by structuring the loan as a simple promissory note      to the operating company. While this may be quick and inexpensive, it      leaves lenders with far fewer protections if the borrower gets into      trouble.
      
We take a different approach. Even on sub $25 million commitments, we      apply many of the same belts and suspenders you would see in nine figure      facilities. The key to doing this cost effectively lies in our      templatized legal docs, which allows us to deliver institutional level      protections without excessive cost.
      
What Belts and      Suspenders Mean
      
     1. A Clean, Bankruptcy Remote SPV: We require the borrower to establish a      new subsidiary LLC, known as an SPV. The SPV has no operating history and      no legacy creditors, and it holds only the assets against which we are      lending. This structure helps isolate the collateral and strengthens      bankruptcy remoteness.
      
     2. Perfected Security Interest:  We file a UCC-1 lien on the SPV,      making us the sole senior secured creditor. The SPV also opens a new bank      account, which is subject to a Deposit Account Control Agreement (DACA).      This gives us the ability to “lock” the account and assume control of      funds in a default scenario.
      
     3. Servicing and Governance Protections: A servicing agreement between      the parent company and the SPV helps strengthen the bankruptcy remote      argument. We also require the appointment of an independent manager at      the SPV level.
      
     4. Ongoing Monitoring and Borrowing Base: We implement a borrowing base      that requires regular reporting on eligible assets and portfolio      performance.
      
Why It Matters
      
At first glance, these measures may appear excessive for a $15 or $20      million facility. But risk certainly does not scale down with deal size.      By insisting on bankruptcy remoteness, perfected security, cash flow      control, and independent oversight, we provide strong protections for our      investors. And because we rely on standardized documentation and      streamlined processes, we can apply this institutional discipline without      adding unnecessary cost or friction.
     
     
     - Jillian

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TheFederal Reserve has a strange dual mandate: maximize employment and keep pricesstable. Unfortunately, it has one main tool, interest rates, to achieve both.That imbalance doesn’t make much sense.

Critics often point to this structure as flawed. The Fed often has to raiserates to fight inflation at the expense of jobs, or lower them to spuremployment and risk overheating the economy. But despite this awkward setup,the Fed has proven remarkably effective over time.

Some argue it helped fuel past crises like the GFC. But I’d argue those criseswould’ve dragged on far longer without the Fed’s intervention. Letting markets“self-correct” might sound appealing in theory, but in practice, it would’vebeen brutal.

So while the Fed’s design isn’t perfect, it doesn’t need to be changed.Independence has allowed it to act quickly and decisively when it matteredmost. And that’s worth preserving.

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– Conor