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News
News in brief
Connecticut pension fund joins new trend for evergreen fund-of-ones
The Connecticut Retirement Plans and Trust Funds’ investment advisory council has recommended a new private debt fund-of-one with an evergreen investment period to the pension board in the latest example of institutional investors seeking flexible vehicles.
The investment advisory council recommended the pension make a USD 750m commitment to HarbourVest CT Private Debt Partnership during a December investment committee meeting.
Though a fund-of-one with an evergreen structure is not typical, this type of strategy is becoming more popular with large LPs because it provides optionality, said Brett Murray, a director at placement agent Briarcliffe Credit Partners.
Dechert partner Gerry Brown added: “The interest in evergreen vehicles has been coming in large part from institutional investors like state plans, which would prefer not to have to go back to their investment committee periodically for approval for new investments. The evergreen feature... puts their investment on autopilot.”
Structuring an evergreen feature into a separately managed account or fund-of-one can be easier to do than for a commingled fund because the GP does not have to address all of the contribution and redemption issues that arise from juggling many LPs, Brown said.
“I think it’s a unique twist that opens lots of doors for GPs if they can figure out a way to implement an evergreen fund structure to a strategy that matches the investment terms.”
A spokesperson for HarbourVest declined to comment.
UBS forecasts strong private credit returns in 2025, but also downside risks
UBS Global Research has tipped double-digit returns for US investors in its 2025 private credit outlook, but emphasised the risks are skewed to the downside.
The report, authored by a team led by strategist James Martin, forecast that total returns for US private credit in 2025 will be 10-12% with leverage. While credit stress is expected to ease, the effects of this will be balanced by lower base rates, which are anticipated to erode performance. The report noted that “new issue spreads in private markets are converging with BSL, driving similar performance”. The authors expect leveraged loan returns to come in around 7-8% on an unlevered basis.
Private credit markets had a challenging 2024, with some high-profile distressed situations, and opportunities for new buyouts limited by an elevated interest rate environment, but returns for the year still came in between 10-15%.
The unfolding geopolitical environment poses concerns for the authors: “Domestically-focused middle market firms should be insulated from tariff risks, but in the event of a growth shock we see the space as exposed from a fundamental, liquidity and sector concentration perspective.”
Signs of fundamental stress “remain prevalent despite some improvement over the past few quarters”. The report notes that selective defaults will continue next year, remaining elevated compared to historical levels, although continuing to trend lower. In BDC portfolios, PIK-usage is expected to continue.
Growth shock is pinpointed as the largest tail risk.
Institutional loans set records while ratings agency data diverges
It isn’t just the CLO market breaking records this year. Loan volumes are also continuing to set records, according to the latest Debtwire data for November. Leveraged loans recorded USD 115bn overall this month, with USD 78.5bn in institutional loans. Institutional loans have so far reached USD 1.1tn in 2024 year to date, a stark contrast to the USD 329bn raised at this point last year.
Institutional refinancings are less than USD 50bn away from crossing the USD 1tn mark in 2024. The refinancing total for the full year has already far surpassed any previous records — the closest was barely USD 700bn in 2017.
Dividend recaps are also up, at USD 24.4bn, more than triple the amount raised last year. As a percentage of overall issuance this remains low, at just 2.2%. However, here again refinancing is skewing the picture: when looking at new money deals only, 16% of these deals are dividend recaps — the highest on record.
Just USD 180m in buyout activity was recorded throughout the whole month, while other M&A activity was similarly low, at just USD 2bn.
On the performance side, Fitch shows leveraged loan defaults continuing to rise, up at 4.7% of the universe — higher than any period during 2020’s default spike. However, while S&P Ratings held a similar default rate, it shows peak default activity back in April, followed by a steady decline. Part of this is due to the S&P value including both loans and bonds, with the remainder likely due to differences in the definition of a liability management exercise.
Top stories on creditflux.com: debut deals done in the US and Europe
21 November
Barings prices Europe’s
first private credit CLO
Barings achieved a long-awaited milestone when it priced Europe’s first middle market CLO via BNP Paribas. Sized at EUR 380m, Barings Euro Middle Market CLO 2024-1 is a static CLO with a structure surprisingly similar to a regular European BSL CLO.
Joe Evanchick: head of the middle market CLO platform at Barings
13 November
Blackstone backs CLO captive equity fund for Brigade Capital
Blackstone made a USD 300m investment in Brigade Capital, allocated 50/50 between Brigade’s existing CLO business and its growing private credit strategy.
14 November
KKR joins CLO captive equity rush
Investment giant KKR is fundraising for a new CLO equity fund, with a target of USD 300-400m, to back the issuance of its CLOs.
18 November
TCW unveils CLO ETF
Los Angeles-based TCW Group announced the launch of a triple A CLO ETF as part of an expanded suite of US offerings for investors, advisors and institutions.
19 November
Marc Boatwright leaves Post Advisory
CLO veteran Marc Boatwright resigned from Post Advisory Group after joining this year as a portfolio manager for the firm’s CLOs and private funds platform.
20 November
Bank of America forecasts record issuance in 2025
BofA Global Research forecast 2025 as a record year for US CLO issuance, driven by increased loan activity, greater private CLO creation and ongoing recycling.
22 November
Return of manager tiering keeps spreads flat
Despite the headlines announcing US BSL CLO triple A coupons moving tighter for some top-tier managers, average pricing in November continued the flat trend of previous months.
25 November
Permira prices debut US CLO, Menlo CLO I
The European asset manager became the third new BSL manager in the US this year.
26 November
GoldenTree posts tightest US CLO print in years
GoldenTree shattered the existing year to date US BSL CLO triple A benchmark with a new deal pricing the triple As at SOFR plus 127bps, four basis points inside the previous tight.
26 November
Montana commits to three credit funds
The Montana Board of Investments disclosed commitments worth USD 200m to funds managed by Deerpath Capital, Stellus Capital Management and GoldenTree Asset Management.
3 December
Direct lenders add pricey terms on amend-and-extend deals
Most direct lenders demand extra fees to execute amendments, extensions or waivers, according to a survey from Configure Partners.
3 December
BlackRock acquires HPS in USD 12bn deal
BlackRock acquired HPS Investment Partners in an all-stock transaction, greatly increasing its capabilities in private credit.
4 December
Reed Smith continues CLO expansion
Global law firm Reed Smith announced the hire of experienced CLO lawyers Peter Williams and Elizabeth Walker.
Past returns
Secondaries time around
Private credit secondaries may be soaring now (as this story lays out), but this isn’t the first time they’ve been in the spotlight. Exactly five years ago we wrote that “Private debt secondaries grew massively in 2019 — and more is expected this year.”
One stark difference between the two stories is what ‘massively’ means.
Five years ago data from secondary advisory firm Setter Capital showed that private debt secondary trading volumes stood at USD 2.2bn in the first half of 2019. This year’s tally is expected to be USD 12bn.
Points up front
New home for landmark event
Moving on is always hard to do, especially after more than a decade in one place. So the idea of the Creditflux CLO Symposium and Manager Awards leaving the Landmark Hotel behind will be hard for many of us. But don’t worry, this isn’t a Vegas-to-DC-style shift. We’re only moving half a mile to the heart of Marylebone.
We’re very excited to announce that the Symposium’s new home will be at the Nobu Hotel in Portland Square — giving us some very high expectations about the quality of the refreshments.
We look forward to seeing you there on 14-15th May next year, and perhaps for the next 10 years as well.
Moving on: Nobu’s chain of restaurants and hotels are a different kind of landmark
Forgotten friends are doing okay
Talking of old friends, do you remember trups CDOs? We have to admit to forgetting about one of the CLO market’s sister products entirely until a ratings announcement from Moody’s about a 2007 deal, ALESCO Preferred Funding XVI, arrived in our inbox.
It seems that trups CDOs (or this one at least) aren’t just still kicking around, but are performing moderately well.
This ratings action was announcing a raft of upgrades to the class A, class B and class C notes, although the OC ratio for the class Cs is still a little under water at 99.6%.
