February 2026
John explains why WhiteHawk underwrites every loan to the worst-case scenario and how focusing on real, liquid collateral has allowed them to never lose money on a loan, even when borrowers fail. This conversation provides insight into how downside protection drives durable income.
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Ep. 172 From Farm to Portfolio: How Food Lending Delivers Cash Flow w/ Proterra
My name is Mike Rudow. I am a partner and wealth advisor here at Morton Wealth. And as you guys have learned today, Morton is proud of doing things and thinking differently. Right. And with that, we are obsessed with building resilient portfolios. But that can be hard, because it's hard to find fund managers who align with our thoughts and meet our criteria.
But luckily, we've been able to find that with John Ahn and WhiteHawk Capital Partners, we have been partnered with them since early, back when they were Great American Capital Partners. And we've been able to benefit from their consistent returns and unique loan structuring since then. So I wanted to allow John to take a second to introduce yourself and then we can get started.
Thank you. My name is John, and I'm a co-founder and CEO of WhiteHawk Capital Management. We're based here in Los Angeles and in West L.A. And we have large offices in, in Florida. We are currently investing out of our fourth fund. We raised just over $ billion in that fund.
And, what we do, well, first of all, thank you for having me. Thank you, Jeff, for having me. I'll try to keep this somewhat exciting since it's after lunch. And you have great socks, by the way. So kudos to your socks.
They were a gift, actually, by these two, right? So thank you guys.
So I usually get crab for my socks, so I'm good that I'm happy that you have. You have brighter socks than me. So we will be going out with our fifth fund targeting, probably, . billion in the Q of, of . But the Evergreen Fund, which, really at the request of Morton, really performs well for our strategy.
And it accepts money every, every quarter. I think the benefits of investing in an evergreen fund versus a drawdown vehicle, you get to see the portfolio, you have a shorter commitment period as well. And because of we'll get into to WhiteHawk strategy, but because of the short duration of our loans, it it works out really well.
When, when and if someone wants to, to redeem, WhiteHawk Capital, we're an asset based lender. What does that mean? Asset based lending is very different than regular private credit. % of the lenders out there in the non-bank lending world, they're cash flow lenders. So they're underwriting enterprise value. What does that mean? That that means there's an ongoing concern.
They're looking at things like that, the Ebit, interest coverage and things like that. As an asset based lender, we look at those things too. But the most important thing that we focus on and this will get into ultimate downside protection. We're focused on the collateral and the assets that secure our loan, because we're underwriting every company that we lend money to, to the worst case scenario, which is bankruptcy, and not being able to come out of bankruptcy, but actually having to get your money paid back through the liquid liquidation process and monetizing the assets that secure your loan.
So we've done over over the last ten years. We've done loans, aggregating to $ billion in loans. Out of those , we've realized of those , and about % of those realizations have come through bankruptcy and liquidation. Now, when you talk about bankruptcy liquidation, you're always you think you're losing money. Well, because we're asset based lenders, we've never lost money on the loan.
And think about that. We've % of our realizations have been through liquidation. In fact, we make more money on the companies that we actually get our money paid back through liquidation. And we can get into that later. So real that people talk about correlation and markets and whether they're frothy or not, whether they're going to be problems.
You know, our strategy is very differentiated because we're not even correlated to the success of the company. And as a lender, I we think that's super important because if you think about that versus a lot of different alternative investment strategies, they're tied to the success of the company. We and we really don't care what happens to the company because on a liquidation, we're going to make a % gross return on our loans.
The majority of our companies end up refinancing us out, and we make maybe an average of % gross return returns on our loans. So, being uncorrelated not only to the markets but also to the success of the company, I think is, a big differentiation point for WhiteHawk.
Yeah. No, I think it's it's fun to when we're talking about that with clients because, you know, I'll be going over the position, I'd be like, oh yeah, they made a loan to RadioShack. And they're like, well, what? What are they doing? Making a loan to RadioShack like that sounds dangerous. And then just for the points that you just discussed, right, it doesn't matter the health of the company or the direction of like, I mean, not that we're rooting for companies to fail, right?
But, you know, the the underlying health of the company isn't as important. So thank you for that. And the evergreen structure, I think is a game changer, especially for, for us and our Morton clients, where the biggest pushback we get is how can we get more money into WhiteHawk for new investors who are coming in, who maybe came with a referral, who had had that allocation before.
And now that we have the ability to get that as part of our asset allocation, I think is is awesome. So thank you for doing that. So I've got I've got five questions. And I thought to change it up a little bit. We could play Truth or Dare. No I'm I'm just kidding. I just wanted to add a little space to the investment stage.
So what types of collateral does WhiteHawk typically lend against, and how do you assess the quality and liquidity of those assets for downside protection?
Right. So a lot of times when people talk about having collateral and being a senior secured lender, they they they really don't know what their collateral is worth because they're probably going off on a balance sheet which has a net book value, which is a real theoretical value. What we look at is the liquidation value, which is really important, and the types of collateral that we will lend to.
So we've lent and I think this is another differentiator. We've lent the our quote unquote competitors. They're probably to % of their portfolio is in retail. He mentioned RadioShack. Well, we've lent to Barneys, Payless Shoes. We just did a, a the Family Dollar deal. We let that deal is a $ million term loan. We just announced that actually, they wouldn't let us announce it, but we did a $ million.
Turn them, to JC Penney. These are all crappy companies, right? So, yeah, most of our. So our companies are they're challenged, and we're the only credit providers out there that will give them extra liquidity to kind of right their ship and turn their business around. The majority of them do, but we're still going to underwrite them to failure.
If you if you're talking about collateral, think about the fact that we were the first company to first fund to lend in the collectible space. Now collectibles, I'm talking like Mickey Mantle cards. Tom Brady rookie cards, their jerseys and things like that. That's a relatively liquid asset. You can go on eBay and you can kind of see where this stuff trades, and you got to authentication and all this stuff that I learned, which I don't really get why people like it, but it's a real market.
The more liquid the collateral is, there has to be a secondary market for the collateral. If the company no longer exists. That's how we will look at what type of collateral that will lend on. So it's it's common sense, but you have to have real knowledge of what assets trade at in the secondary market. And it has to be liquid, meaning that.
There has to be a lot of turnover in the collateral we've lent. We've looked at some shipping vessel related transactions, and they may maybe spend $ million on a specialized ship, but one hasn't traded in in two years. So we're not going to lend on stuff like that. So you really need to look at the liquidity of the collateral.
We talk about liquidity a lot in all of our deals. We talk about liquidity in the system because bankruptcy expensive. You have to make sure there's enough liquidity in the system to pay for the bankruptcy process. Liquidity is probably the key thing that we really focus on. And then if you get comfortable with the collateral, you got to drill down into what's your loan to value, what's your advance rate?
We call it the advance rate. So if it's a less liquid type of asset, but there's some liquidity to it, we might be lending at or % of the liquidation value. If it's a highly liquid asset like retail inventory, we might be well into the s. On the liquidation, the LTV, on the liquidation value of the of the retail inventory.
So, a lot of bells and whistles and there are a lot of ways to kind of control your risk. And the other key thing is most lenders, they lend the money and it's set at the beginning of their loan and they don't monitor it. And that's just as important as investing the capital is you have to monitor it.
So, our borrowing base, which is what the LTV is based on, it's dynamic because asset values go up and down during the life of a loan. They could go up and down seasonally. Right. So you have to be out. If you're at % loan to value, you have to be able to always stay at that %. There's there's mechanisms that we have in our loan agreements.
So we never go outside of that %. And we have the ability to always reappraise assets at any time that we want. If my partner wakes up in a bad mood, he can just say, okay, I want you guys to reappraise it. Right? So that's that's how much control we have in our loan covenants.
Yeah. No. And that makes complete sense to me because if you're loaning against an asset, you have to make sure that there is a liquid market for that asset. If you do need to take over that collateral and, you know, create liquidity from that. Curious. And this is off script, what's the most unique asset that you've collateralized that you've loaned against?
I mean, in your years of experience is everything like a pod, a dolphins or.
Well, actually, I was just talking to Sasan about this outside, and, he's one of the partners at Morton, and, you you and people have done this, and they never learned their lesson, and they lose money. You don't want to lend on assets that can tie in with what? What do I mean by that? We've looked at deals that are secured by livestock.
We've looked at nursery deals. Your plants can die. Things like that. You know, wineries are there. There are things that that dramatic things can happen that you want to really protect yourself on. But I think the probably the most unique thing was we were the first guys to do that collectible deal is really kind of interesting because if you think about what we're how we're looking at the collateral, you have to.
So when we look at any deal, we try to think of every thing that can go wrong, and we have to be able to protect ourselves from it and structure around it, or we're just going to pass on the loan and the collectibles deal. If you think about this like, you know, a rare Mickey Mantle card, or people might have a lot of Tom Brady stuff out there, right?
Because he's he's still, alive and and obviously he's the greatest quarterback. Right. But you have to make sure you don't have too much concentration of Tom Brady stuff. And by the way, what if we wake up tomorrow and he's accused of of child molestation right. So we have a lot of things in our documents. Concentration limits types of collateral.
What types of collectible it was, whether they're living or whether they've passed away. But just a ton of bells and whistles, again, thinking through every potential bad thing that can happen. Theft, fraud. Right. Things like that.
Yeah, I know for sure. And thank you for going off of script there. Can you, can you share an example of a recent investment where the collateral played a decisive role in either making the loan or in protecting the downside during a challenging situation? So something that you've that's recently come across your desk?
Well.
We look at that on every deal we do. But, the most recent deal, the JCPenney deal, their public name is or their big name is catalyst. And JCPenney went to bankruptcy. They were taken, bought or brought out of bankruptcy with a consortium of Simon Properties, Brookfield and Authentic Brands. So, you know, kind of a real interesting smart play because I haven't shopped at JC Penney for a long time.
And most retailers are where they're struggling, right? Most retailers are crappy, to be honest with you. So, the your primary lending on a, there's a bank that does a revolver and they're lending, working capital and they're lending out something like so for a plus two and a half. And then typically what we'll do is we'll stretch on that collateral.
So they might be at %. So we'll stretch another or % on the net orderly liquidation value, which is super important because that liquidation value, it it it actually, considers the expenses to monetize that asset. So we stretch on that up to on paper, %. But we also had the real estate now our real estate exposure comp sales, because they sold off some stores when they came out of bankruptcy, they sold for $ a square foot.
Our exposure is $ a square foot and we're landing at % on the on the real estate value that that is a chunk of the of the assets on paper. We're also lending on brand value or IP value. But when you do the math, we're actually have zero exposure to the brand value or IP value. And they own brands like Eddie Bauer, Brooks Brothers and a couple others, which I can't remember right now.
But, really conservative types of loan to values. And what we're taking advantage of in most of our situations is the fact that there isn't much competition. There is a bit of hair and smoke around the situations that people just don't want to deal with. And that's the way we get the pricing that we want. That's the way we get the structure that we want.
But yeah, that's retail's a pretty easy thing. And you got to think about when you're looking at liquidation value, how do you actually liquidate it. So retail is different than all other industries because when a company goes into bankruptcy and liquidation, you're actually liquidating it through their existing stores. So if you're ever going by a retailer that's in bankruptcy, they have going out of business sale, you know, x percent discount, which, by the way, is B.S., you're actually not getting that discount on the on the liquidation, but you you're monetizing it collateral through their existing stores.
So it's a really quick, easy process. But then when you start doing other types of companies, it's more of an auction process. And that's, you know, complicated in its own way. But having that knowledge is, is, you know, it's not something you can learn in the textbook or in a credit training class. You have to actually have gone through a bunch of them right now.
Thank you for that. You guys have proven to be market agnostic where your non correlated and you guys can perform basically in in any market environment. But you know there's a there's a lot of uncertainty as there always is. But we're kind of driven by headlines here. And with that market volatility and the macro economic uncertainty, what are you doing differently if anything?
We tend to thrive in when there's more uncertainty and more volatility in the markets. And the reason why that is, is because traditional cash flow guys will pull back and banks will pull back. So that means there's less competition on the deals that we look at. And that will also affect the borrowers. There should be more pipeline. There should be more borrowers that can't get credit regular way.
So it should really increase our pipeline of deals. And that way again, we can charge more for our capital and we can, structure our deals even tighter than they than they already are. Unfortunately, we've been kind of hoping and I shouldn't say that because you guys invest all over in different strategies and you might get stressed out on.
But but people have been calling for a big correction, in the credit markets for a while, and it hasn't yet happened. There's been some recent things that have happened with First Brands and Tricolor, fraud related that that people are wondering, is that because so much money has been raised in private credit? Are people just, throwing money out there and lending it to easily that that could be the case.
I don't know if if that'll happen, but we will benefit it. We will benefit from more dislocation in the credit markets. Versus other plain vanilla direct lending strategies.
With never losing money on a loan, there's still has to have been things that have gone wrong and lessons that you have learned. So will you give us an example of maybe a loan that you guys did that didn't go your way, didn't work out as expected, and then the lessons that you learned from that?
Yes. So I think there's a there were surprising things for us when things don't go our way is when you look at our pool of collateral. So it could be, a diverse pool of collateral, actually, maybe we got higher recoveries or lower recoveries on certain certain assets. That's kind of been the surprise. We've learned some things, through the process about, things such as, because customer deposits, whether how those are treated in bankruptcy, when you're landing up in Canada, you got to be careful with the pension liability.
You can actually get ahead of you versus here in the States. So I think that's the only surprising thing. But the way we view it when companies go bankrupt and they're trying to work themselves out, we view ourselves as for that extra work that we're getting paid. So on average, we're making over % on those quote unquote bad borrowers.
We're charging them the default rate of interest, and they have to pay us while they're in bankruptcy, which people like. I thought, you don't get paid when a company is in bankruptcy. Well, our documents are written by bankruptcy lawyers. They're not brought in afterwards. Right. And there's a thing called adequate protection. And, since they're using our assets while they're in bankruptcy and trying to reorganize, we get to charge them adequate protection payments, which just means that they have to pay us monthly at the default rate of interest in cash.
And we even crystallize our exit fees. So we get paid our exit fees when we get paid back through the liquidation. So, yeah, we're you don't want to be borrowing money from us. That means you kind of have some some issues.
I always tell my buddies.Yeah, if you're looking for money for me, you have some serious problems.
No, no, I love it. Thank you. Guys, we are running out of time. So I did want to see if there were questions.
[Unintelligible]
Yeah. So, great question. So we're always first lien senior secured, but in the waterfall we might be behind a bank. But here's the thing. So people are like, oh, that's secondly. No, you're wrong. We're first lean, but we're behind the bank. And it's really important. Even though technically in the waterfall were in the same position. And secondly, the reason why we don't do secondly, if you're if we're your last out on with the bank and you're the same document as them, you're considered one class in bankruptcy.
They can't do anything to you versus jamming the second line guys. Right. So we only do last out first lean deals where we have what we call an agreement among lenders. You'd call it in their creditor agreement. It outlines everyone's rights and remedies if things go bad. So, but I would say the majority, , %, we are the first lien on the collateral.
So you're going to get back first? Yes, I but the first thing secondly, big, big distinction. And the other thing you might look at, some asset-based lenders are doing SPV bankruptcy mode as banks bankruptcy, remote SPV people get comfort in hearing that. I can spend an hour with you if you want. Afterwards, explain to why that's we don't do that and there are good reasons why you shouldn't do it.
All right guys. So that is all the time that we have for this session. But John will be sticking around for the next minutes or so. So if anyone has a question wants to come up to him, he won't bite. But thank you everyone for being here.
