It’s all about the Bridge.

Yesterday, we laid out the rationale and reasoning for doing a liquidity test on portfolio companies. The point is to identify companies that cannot survive at least 6 months without external financing. That means they:

1. Don’t generate enough cash from operation to pay for operating and financing costs in a stressed situation.
2. We’re assuming a stressed situation is a 25% reduction in revenue from 2019 levels.
3. Don’t have enough cash on the Balance Sheet to plug the difference for at least a year.

We’ve laid out the results in a table in the next section. We’ve rated each investment as follows:

1. Safe – company generates more than enough cash to meet operating and financing costs in our stress test.
2. Stressed – company doesn’t generate enough cash to meet operating and financing costs in our stress test but has enough cash on the Balance Sheet to cover more than a year of expenses.
3. Toxic – company neither generates enough cash to meet operating and financing expenses in our stress test nor does it have enough cash on the Balance Sheet to plug the gap for more than year.