Ross Sylvester, Napier Park Global Capital

Welcome to Lender Lens, our series for profiling leaders in the Lender community.

With private credit playing an increasingly important role in the financial system, we wanted to find out how lenders are navigating the evolving landscape and how they assess the market in the coming years.

Dealmaking has become more complex in today’s market — and private credit is adapting.

What actually drives your underwriting when you’re deciding whether to back railcars versus aircraft?

The framework is consistent across both: we underwrite the asset, the operator, the contractual cash flows and our downside mitigation. What changes is which risks matter most and the exposure (or lack thereof) of a given transaction to those risks.

With railcars, we focus heavily on the industries and commodities driving demand, the specific car type, fleet utilization, replacement costs and how readily the equipment can be redeployed. Railcars can have long useful lives, but they are not interchangeable. A car designed to transport one commodity may have very different demand characteristics from another.

Aircraft underwriting puts greater emphasis on the airline counterparty, the aircraft and engine type and related obsolescence risks, maintenance condition, lease structure and global remarketing potential. Aircraft leases also tend to be longer, and maintenance obligations are more significant.

In both cases, we are not simply asking whether the borrower can make the next payment. We are asking what we own if something goes wrong, who else could use it and what it would take to preserve or recover its value.

When you’re underwriting assets that can have a 10- or 15-year economic life, how do you think about pricing risk that far into the future?

We do not pretend we can precisely predict what an asset will be worth 15 years from now. Instead, we focus on building an investment that can perform across a range of outcomes, and while aiming to outperform similar assets on a relative basis.

That means using conservative residual-value assumptions and stress-testing utilization, lease rates, maintenance costs, replacement costs and potential technological or regulatory changes. We also consider how quickly capital is returned through lease payments and amortization, rather than relying primarily on a sale at the end of the investment.

The structure matters as much as the asset. Railcar leases average roughly five years, with a portion of the portfolio coming up for renewal each year. That gives us opportunities to reprice leases as market conditions change, but do so with a meaningful contractual cash flow element that seeks to mitigate downside in more challenging market conditions. With aircraft, the longer lease terms and maintenance requirements call for a different set of mitigations.

Ultimately, there are many ways to be “right.” Potential returns can be generated through contractual income, intrinsic asset value and structural downside mitigation.

The key question we seek to answer is: among those elements, where can we afford, or not afford, to take risk, and how should that inform our investment decisions?

There’s a lot of capital chasing hard assets right now. What gives Napier Park an edge with an operator?

Capital is important, but operators also value certainty, sector knowledge and a partner who understands how their business actually works.

In my view, our edge is that we approach these investments as both owners of physical assets and credit investors. We understand the operating requirements and actively seek out markets where operational considerations limit participation. We are generally not a provider of low-cost capital, and as a result we seek out markets where low-cost providers are less comfortable given the operationally intensive nature of the equipment itself.

We also aim to be a strategic, repeat partner across a range of market environments rather than simply the highest bidder on an individual transaction when a market is “hot.” Operators know we can evaluate complex fleets, move with conviction and remain engaged after the transaction closes. In specialized markets, that credibility and execution history can matter just as much as price.

Napier Park’s AUM has roughly doubled in the past few years. What are investors finding most attractive about the strategy right now? And on the other side of that equation, where are you seeing the most attractive opportunities to put that capital to work today?

Investors are looking for durable income and diversification, but they also want to understand what supports those returns. Real assets can offer contractual cash flows backed by essential, tangible equipment, with return drivers that differ from traditional corporate credit and many of the more crowded areas of private markets.

Railcars are a good example. They serve more than 30 industries, have long useful lives and remain a highly efficient way to move heavy goods over long distances. Exposure can be diversified across commodities, car types, lessees and lease maturities. Aircraft and other equipment-leasing strategies can provide similar contractual income, but with different end markets and risk factors.

On deployment, we are not trying to put capital to work simply because we have it. We are most interested in situations where specialist knowledge and structuring capabilities matter, including financings for operators seeking capital to grow or modernize their fleets, as well as transactions that are too complex or specialized for generalist lenders.

The opportunity is not simply to own or lend against a hard asset. We aim to identify the right asset, with the right operator, at the right point in its economic life and with a structure that aims to mitigate the downside, ideally in a market where competition based primarily on cost of capital is limited.

If you weren’t doing this, what’s the career you’d have ended up in instead?

I am an airplane geek at heart, despite my railcar focus, and I would have enjoyed being an airline pilot.

What’s a place you keep meaning to go but haven’t made it to yet?

I’d like to spend some time in China, particularly in more rural areas. I find it to be a particularly fascinating place – both culturally and geopolitically.

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