August 2021 | Issue 237
Opinion Loans

Alongside larger private equity funds, loan volumes will continue to grow

Phil Bennett-Britton
Partner, portfolio manager Spire Partners
Born:
Toronto
Lives:
Bramley, Surrey
Education:
studied Law at University of Nottingham
Hidden talent:
played national chess tournaments from age of six
Last holiday destination:
Pembrokeshire, Wales. It’s absolutely beautiful (provided the weather holds).
Favourite movie:
Heat directed by Michael Mann. Unbelievable cast with Al Pacino, Robert de Niro, John Voight, Val Kilmer, Ashley Judd, Tom Sizemore, Natalie Portman, to name just a few. He loved it on first viewing and every time since. Great internal struggle on whether you should be rooting for the good or the bad guys.
Bucket list:
Get to a Super Bowl (a lot of his bucket list is centred around live sport).
Career:
Bennett-Britton co-founded Spire in 2012. Three years later the loan manager launched its first European CLO and has since scooped up a plethora of Creditflux CLO Manager Awards. Before Spire he worked at 3i, Mizuho and ING.
Spire:
is a European credit manager. Initially specialising in loan management through CLOs, the firm has expanded into high yield and CLO tranche investing. It has roughly €3.5 billion in assets under management.
Q.
What was your first job in credit?
A. I started in M&A at ING Barings before transferring to ING’s acquisition finance team back in the very early 2000s. M&A is often seen as a good training ground. My first portfolio management role was at 3i, managing its inaugural debt fund from 2009 to 2011. While at 3i, I worked on the acquisition of Mizuho Investment Management (the Harvest European CLO business) in 2011, and took over primary portfolio management responsibilities of two of the Harvest CLOs. I also led the acquisition of various European CLO management contracts from Invesco in 2012.
Q.
What are the best and worst investments today?
A.
We focus on specific asset classes in credit, but the best investment would be European CLO triple As, which look increasingly cheap north of 100 basis points with the additional benefit of the floor. They are especially attractive given that no triple A, double A or single A-rated European CLO tranches have experienced capital losses.

The worst investments are some triple C-rated individual credits. There is little scope for underperformance in the price/yields on offer.
Q.
What is your best ever investment?
A.
Individually, I hope setting up Spire Partners in 2012 will be up there. In funds managed, buying Wind PIKs back in early 2009 was very successful. They were trading in the 30s at the time and eventually repaid at par.
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Q.
And the worst?
A.
Selling anything in 2020.
Q.
Explain your firm’s name?
A.
Having left 3i, the other partners and I were considering setting up a business together. In trying to map out our initial business plan, we titled all the working files as project spire. We settled on Spire Partners due to a lack of imagination, and because all the names of trees, bays, rivers, coves, etc had already been taken.
Q.
Where is the market heading?
A.
The magnitude of co-ordinated support provided by central banks and governments over the past 15 months will continue to impact the global economies and the European leveraged credit markets for years to come. There is little doubt that the default curve has been pushed further out as a result. Alongside ever larger private equity funds, loan volumes will continue to grow.

However, with aggressive documentation granting increasing flexibility to borrowers and weaker protections for lenders, we believe there will be a rude awakening, with recoveries being materially lower than long-term averages.
Q.
What needs to change about the way your industry does business?
A.
Other than scrapping transfer fees, it has to be earning delayed compensation on new primary loan transactions. Lenders that have been allocated on new issue loan transactions have provided an irrevocable commitment — they are on risk when it comes to default — yet do not earn any delayed compensation until funded into the transaction by the arranging banks.

There is little incentive for arrangers to be efficient, given they are earning the carry, having shifted the default risk. Lenders tend not to be funded in at the same time, which goes against treating all counterparties equally. This is compounded by poor ticking-fee mechanisms, often resulting in considerably lower first-year returns on primary transactions. This compares to the bond market that funds into escrow T-plus-five or T-plus-seven on most transactions.
Q.
Where do you see future opportunities?
A.
A few years ago we launched our first multi-asset credit fund, which has a broad mandate across loans, bonds and structured credit. On the back of the track record of the individual components, we plan to expand and offer additional dedicated fund strategies.
Global credit funds & CLO's
August 2021 | Issue 237
Published in London & New York.
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