Global credit funds & CLO's
April 2020
| Issue 222
Published in London & New York.
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April 2020 | Issue 222
Asset managers pull all liquidity levers to satisfy borrowers
Seth Brumby
Head of Americas
A paramount concern for many investors in direct lending funds is whether asset managers have enough liquidity to meet borrower requests for funding. In response, many credit managers and BDCs have done everything possible to meet liquidity draws.
“There is a lot of interest in putting more money into these companies,” says Jessica O’Mary, a partner in the asset management group at Ropes & Gray. “Most lenders and borrowers are working through the current situation to not bring things crashing to the ground.” From expanded accordion features under an existing revolver to the private placement of unsecured debt, and reductions in share repurchases, fund managers across the size spectrum have been turning over the couch cushions for every last dime of cash as businesses go quiet from coronavirus fallout. “We believe the ongoing implications of covid-19 will have a significant impact on the real global economy, and we, like many others, are executing contingency plans for this public health and economic event,” wrote TPG Specialty Lending in a March portfolio update.
Contingency plans for TPG include the expectation it will increase revolver capacity to $1 billion from $925 million. Goldman Sachs BDC wasted no time in reporting it had drawn $300 million on its revolver and has $795 million in capacity for $68 million in unfunded commitments. Use of proceeds from any debt issuance can provide funding for portfolio companies, while also creating the dry powder necessary to take advantage of a wholesale repricing of loan facilities. “We have capacity to provide new commitments at the appropriate level of risk-adjusted returns,” added TPG. Liability management is a key strategy for any period of economic distress. Pulling liquidity levers for commitments is just one tactic. Stockpiling cash for future opportunities is another. Some managers are using the sell-off as an opportunity to repurchase shares. Apollo Global Management increased share repurchase capacity to $500 million from $80 million.
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“Lenders and borrowers are working through the current situation”
Jessica O’Mary,
Partner | Ropes & Gray
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