Global credit funds & CLO's
March 2020
| Issue 221
Published in London & New York.
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March 2020 | Issue 221
Credit managers hunker down as idiosyncratic risks persist
Seth Brumby
Head of Americas
A slew of earnings reports from credit managers and business development companies shows that deal-making and performance are robust, but great importance is being placed on credit selection.
Golub Capital BDC reported that by the end of December, over 90% of its investments are performing. Over the past three years, it has reduced loans performing below expectations to 9.1% of its portfolio in 2019 from 12.7% in 2017. But outperforming loans have declined over the same time period to 2.7% in 2019 from 5.5% in 2017. Apollo Global Management’s CFO and COO Martin Kelley said in the firm’s earnings call that corporate, structured and direct origination strategies have outperformed the S&P Leveraged Loan Index. But credit-specific events took a bite out of performance fees, with an investment in Constellis, which missed a debt payment on 31 December, triggering a plunge in its loan price. “We expect the first quarter of 2020 to be a light quarter for net realised performance fees,” said Apollo CEO Leon Black on the call.
The CEO of Oaktree Strategic Income Corporation, a BDC, outlined a more defensive posture heading into 2020. “While borrower fundamentals remain relatively stable, reflecting US economic conditions, we continue to see company-specific credit deterioration in certain loans held by a number of direct lending funds,” said Armen Panossian, CEO and CIO, during the firm’s earnings call. “This explains why we remain defensive. Even as we maintain discipline, we are finding attractive opportunities,” he added. Defence in credit is best evidenced by moving senior in corporate credit. The COO of Goldman Sachs BDC, Jon Yoder, disclosed on the firm’s Q4 2019 investor call that the percentage of the BDC’s first lien loans increased from 53% to 74% year-over-year. “While the operating environment for our strategy continues to be strong, we’ve maintained our focus on investments in durable businesses that we believe are less impacted by cyclical pressures,” Yoder said.
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“We expect the first quarter to be light for net realised performance fees”
Leon Black,
Chief Executive Officer | Apollo
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