A large global private equity firm had been using a best-of-breed treasury management system to optimally manage its cash and treasury operations and risks. But it had not yet invested in a similarly advanced platform to manage its loan book, relying instead on an in-house solution. Further, the firm operated on a relatively decentralized and geographically diverse basis, with key locations spread across time zones and many departments involved in investment decision-making processes.

Loans are integral to the daily operations of the client’s funds, most of which have a credit facility to support cash management flexibility, regular and material capital calls to clients and fund performance. Lending activity – which typically totals US$4.5 billion across more than 20 facilities – involves multiple internal and external parties. Further, loans can be made at the fund level or may relate to a specific asset acquisition.

With debt finance playing such a critical role to its investment strategies, the firm decided to make a strategic commitment to its lending operations, by issuing a request for proposal (RFP) from leading specialist system vendors.

However, the project to identify and implement a best-of-breed debt management system was initially compromised by staff turnover and expertise retention issues within the client’s lean treasury team. Further, few staff had a view of the overall transaction chain, beyond their immediate area of expertise and responsibility.

Collectively, these factors contributed to the business specifications in the RFP not being sufficiently detailed to ensure the selected system could efficiently perform all the tasks required without additional integration and configuration work.

SkySparc responded to the initial RFP by proposing a fully integrated solution based on introducing the commercial lending module (CLM) of the treasury management system already used by the client, alongside the previously installed treasury and risk module (TRM).

The new CLM would support external loans, as well as some internal credit facilities, while the TRM would be used for specific loan types within the internal loan book. These modules would be augmented by SkySparc’s OmniFi process automation and data integration tool.

According to the proposal, OmniFi would be an integrated part of the solution, supporting system configuration in terms of reporting, dashboards, automated import and update of static data, and for scheduling of alerts/emails to CLM users. To also play a role in automating different test cases, SkySparc proposed that OmniFi would need to be available for various dedicated test and development environments used for the CLM project.

Implementing the CLM module would support the client’s external loan management business processes from initiation of the loan agreements to the settlement and accounting within a single risk framework.

Key areas of functionality that were scoped out for incorporation in the solution included transaction capture and processing, risk and position monitoring, transaction administration and accounting, reporting, interfaces, static and market data, and CSDs.

Due to the need for more detailed information on the workflows and processes to be managed across the client’s loan operations, SkySparc worked with multiple stakeholders across the firm – including accounting, risk management and fund financing teams - to define and describe these where necessary.

SkySparc’s consultants had to adapt to changes in personnel and priorities during the project, partly due to the client increasing its scope in recognition of the solution’s extensive automation and rich functionality. For example, a degree of education was required about the CLM to establish preferences on functionality such as parameters and limits, resulting in an iterative process.

User acceptance testing involved particularly close cooperation between SkySparc consultants and the in-house team, due to the challenges of establishing clarity and consensus around the needs of end-users with differing responsibilities.

A critical element of the project was the design and implementation of multiple customized interfaces to existing systems used by the client’s treasury team, which required both use of OmniFi and a separate loan tool database to manage the export of data from the new module.

SkySparc also built a number of CSDs to meet the clients’ specific needs, including ones to compute credit ratings, create real-time compliance certificates, mirror internal facilities and transactions with multiple counterparties or owners, and automatically hedge loans not in the client’s base currency.

To ensure full visibility to the client’s many stakeholders, SkySparc also worked with the in-house team to ensure dashboards provided the necessary level of reporting.

I am under no illusions about the difficulty of implementing new loan management software at any organization, let alone one as bespoke and complex as ours. I look forward to continue working with you, and improving on this excellent foundation over the next years.

Project Manager, Global Private Equity Firm

SkySparc’s expertise in cost-effective implementation of business-critical treasury and finance systems – based on a close understanding of client requirements – is well established. But this project also required a wider strategic appreciation of the business rationale, drivers and processes relating to the client’s debt portfolio and its exposures, to ensure the eventual solution supported both business goals and best practice.

SkySparc’s consultants liaised closely with the client’s stakeholders throughout the project to drill down into specifications and requirements, proposing and implementing a flexible and integrated solution capable of adapting to evolving needs.

For example, for the internal loan book SkySparc integrated the client’s multi-parameter risk framework into the CLM based on risk weight represented by credit ratings; for external loans, integrated functionality was developed to support the measurement of complex covenant calculations required by lenders.

OmniFi also played a critical role in the efficient processing of often-bespoke loan documents, supporting integration of compliance certificates, meeting complex reporting requirements, and managing lenders’ utilization requests.

Although the project took six months longer than initially envisaged, it delivered a highly automated, best-of-breed platform, with all the functionality required to handle the complexities of today’s lending environment, including adjustment to the post-LIBOR rate framework. Further, the solution was fully integrated into the client’s existing technology infrastructure, including its bespoke internal risk framework.

The client’s project manager recognized SkySparc’s major contribution to the project and the firm’s need for its further support to optimize its loan management operations.

“I am under no illusions about the difficulty of implementing new loan management software at any organization, let alone one as bespoke and complex as ours,” the project manager told SkySparc’s team. “I look forward to continue working with you, and improving on this excellent foundation over the next years.”

Following the completion of the first phase of the project, with a successful go-live operation, SkySparc was involved in a further phase. This introduced capabilities not included in the initial implementation, which have significantly reduced hedging costs for loans.

For example, a new internal loan type was introduced, with a rapid time to market, and full process integration across the transaction chain to settlement and accounting. Separately, SkySparc supported the introduction of changes to the conditions within external facility agreements and to the hedging policy of the client’s EUR and USD loan books.

Having developed an automated test package for the loan function, SkySparc will support the completion of the CLM test package and its integration into the overall treasury test package, to enable the client’s migration to a cloud-based IT infrastructure.