Opinion

June 2020 | Issue 224

Duncan Sankey,

Portfolio director and head of credit research

Cheyne Capital

Opinion

Investment Grade

There will surely be jewels in the high yield dung heap, but the risk-reward is more compelling in IG

Thomas Majewski,

Founder & managing partner

Eagle Point Credit Management

Opinion CLOs

Some managers calculated their CLOs were passing OC tests, only to find them failing the next day

I take strength from the composure investors have shown when told their payments are being deferred

Alexandra Wilson-Elizondo,

Senior portfolio manager | MacKay Shields

Opinion Investment Grade

Forced selling triggered by downgrades has created crossover opportunities

Past returns

Indirect lending

Five years ago in Creditflux we reported how banks were playing a role in European direct lending — an industry borne out of the fact that banks had reduced appetite for lending to small and mid-sized companies. Credit Suisse and Royal Bank of Scotland (now NatWest Markets) were getting indirect exposure by lending to direct lending funds.

More recently, Credit Suisse has engaged in co-investments alongside institutional investors. And syndicated financing has now evolved to the point where BeSpoke Capital produced the first CLO backed by SME loans in November.

Points up front

We knew it, Jon Snow

When Tripp Smith, the co-founder of GSO Capital Partners, launched asset manager Iron Park Capital Partners a year ago we guessed he might like TV series Game of Thrones and headlined our piece: GSO founder takes Iron throne with new manager launch (15 May 2019).

It turns out we were on the money. Iron Park’s debut offering, WIC Fund, drew inspiration from the ‘winter is coming’ motto associated with the fantasy drama. Iron Park is now turning its attention to a follow-up credit fund known as WIN, or ‘winter is now’.

A three-eyed raven tells us that Iron Park has invested in corporate loans and high yield shorts. The distressed play has paid off with WIC said to have gained 57.1% through to the end of March.

No doubt the firm was long Lannister. Because, as we all know, a Lannister always pays its debt.

Game of Thrones: eight series are out as video; only one is available as a credit fund

Senior tranches pay down despite junior OC passes

192 US CLOs have breached at least one over-collateralisation test, according to CLO-i, but at least two deals have not followed the conventional path. Longfellow Place CLO, managed by First Eagle Investment Management, and Oaktree US CLO 2014-1 are failing senior-most OC tests but passing junior ones.

These quirks came about as part of resets, where senior OC cushions were not increased, or only slightly increased, while junior OCs were bumped up.

THEY SAID IT

“There will be a re-tiering of managers after this”

Pierce Derkac, CLO trader at Brean Capital in New York, suggested on a webinar hosted by Kopentech that a CLO manager considered tier one today might end up losing that status based on how they perform during the coronavirus crisis.

CLOs at a glance

The CMBS talf proposal is simple and effective. A similar approach for CLOs would be welcomed

Browse more Creditflux newsletters

Global credit funds & CLO's

June 2020

| Issue 224

Published in London & New York.

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