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News in brief
July 2023 | Issue 256
Asset-heavy companies look again at whole business securitisation
Whole business securitisations (WBS), which improve bondholder protections by ringfencing some parts of a business into an SPV, were popular before the financial crisis, but existing transactions in the UK have started to tap the markets for fresh funds. These include a securitisation of Center Parcs holiday villages.
Enquiries have also been picking up about new deals. “We’ve recently received an increased number of enquiries from investors, arrangers and companies about UK WBS, and our WBS rating approach,” says Radim Radkovsky, director, global infrastructure and project finance at Fitch.
High interest rates are one reason for the resurgence. The structural protections in a WBS generally provide a ratings uplift of 1.4 notches compared with comparable corporate structures, and, as interest rates soar, even small cost efficiencies have become important for borrowers.
WBS usually reference a single operating company, and have historically been used in asset-heavy infrastructure sectors that deliver steady cashflows.
In Europe these deals are typically based in the UK to take advantage of the favourable creditor regime.
Popular sectors include pubs, funeral homes and airports. In the US, WBS have financed gyms and fast-food chains.
Legacy CLO notices go out for Sofr switch
Legacy CLOs are poised to transition to Sofr in a smoother manner than their underlying assets, according to market sources, who say that almost every issuer has sent notices to their investors signalling that they plan to make the switch on 30 June.
The transition in the loan market isn’t going as smoothly, with around 8% of the loan index still referencing Libor without any fallback language.
Around 24% of the CLO market already references Sofr as the deals were priced in 2022 or year-to-date 2023. CLOs did not have the ability to transition early unless 50% of the portfolio made Sofr-referencing payments.
In addition, a small number of CLOs are set to use the Libor Act to switch their liabilities to Sofr, which transitions the deal documentation with the Alternative Reference Rate Committee’s recommended credit spread adjustment of 26 basis points.
For months, CLO equity investors have been cautioning managers against accepting amendments to loans that do not include the ARRC’s recommended CSA, with some issuers and private equity firms pushing for zero or 10bp CSAs, which would reduce the weighted average spread of the CLO portfolio.
This activity was especially prevalent in June, when $190 billion of amendment fallback activity occurred by the time we went to press.
Private credit is still number one topic for investors
Delegates at the Debtwire Private Credit Forum 2023 heard that private credit has become a favourite topic for institutional investors.
Blackstone’s global head of private credit, Brad Marshall, says: “We’re a pretty big asset manager that does a lot of things. Private credit is the number one topic that comes up with investors.”
On the keynote fireside chat, he explained that investors who already have an allocation to private credit have been slow to add more, but that a new set of investors are coming in thanks to the current all-in returns of 12% or higher.
Speakers on the opening panel echoed that sentiment, explaining that fundraising is slow at the moment because of macro-economic headwinds, but that LPs are cash hungry and many have been under-allocated to credit.
Sentiment across the day was positive, with speakers noting that M&A activity is picking up and private equity firms’ record dry powder is creating opportunities. This provides a boost to sourcing, although speakers noted that activity has continued, especially in the form of add-ons.
Bill Sacher, head of private credit at Adams Street, has said that, out of 60 deals the firm been active in this year, 30 to 40 were add-ons.
Marshall: ‘new investors are coming in thanks to 12% returns’
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Global credit funds & CLO's
July 2023 | Issue 256
Published in London & New York.
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