Global credit funds & CLO's
September 2020
| Issue 227
Published in London & New York.
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They should have followed Revlon’s Double Twist mascara slogan of 2009: “It’s worth a double take”
September 2020 | Issue 227
Amid the din of the whirling tempest sweeping through the country I heard an insistent hammering at the entrance to my lair. Probably just the regular industrial strength coffee capsule subscription, I thought, or a consignment from the Tenby brewery — the only things that keep me going.
But no, it was the by-now familiar mug of the debt collector, back again to demand payment or seize possessions for what a London council tax department imagines I owe from 2015. Maybe best not to say which one, but “Something rotten in Denmark” is a clue.
I established three years into this sordid business that I don’t owe a penny. I’ve pored over the records, pinned down the dates, produced proof I wasn’t there, somehow navigated the labyrinthine phone system, dealt with the minotaur at the end of the line and even received an email from someone confirming it was all a mistake.
But nobody at the office has told this fellow and he won’t accept my word or any evidence I produce. Of course, I don’t comply with his demands and have never found a way back through the maze, so it just grinds on and on. I’m reminded of David Graeber’s insight in The Utopia of Rules that “bureaucracies public and private appear — for whatever historical reasons — to be organised in such a way as to guarantee that a significant proportion of actors will not be able to perform their tasks as expected”. The book’s a fine polemic, but he never had to deal with this Kafkaesque nightmare.
Five years of attrition. When civilisation collapses into apocalypse I’m sure this guy will still be there, pursuing me across the bleak wasteland for £141.39. And I still won’t be paying.
This is a long-winded way of saying that something gives me pause in fully endorsing automation, which has a lot to answer for in my predicament. But I do feel it is long overdue that the loan market — and by extrapolation the CLO market — embraced more efficient ways of doing business.
I’m not saying blockchain or related solutions would definitely have averted Citi’s recent “accidental” (as it claims) payment of Revlon loan principal to lenders. But I suspect it would have done — or it would have provided a transparent record of what went wrong. That might short-circuit counter-claims such as Brigade Capital Management’s “it is not at all clear that the funds were sent as a result of clerical mistake”.
At the very least, human error could have been mitigated if something had flagged the administrative agent to follow Revlon’s Double Twist mascara slogan of 2009 that “It’s worth a double take”.
I take no sides regarding the outcome of this debacle. On the face of things, it doesn’t seem quite right that Brigade and a bunch of other asset managers decided to hold onto the money. But then Citi’s argument in legal filings that “Brigade’s actions are not just unconscionable; they threaten the integrity of the administrative agency function and trust in the global banking system” rather lacks reflection that mistakenly parting with $900 million does the same job.
Surely it’s time the big players in the industry got their act together and at least test-drove solutions to streamline loan payments and replace the antiquated rigmarole governing areas such as loan settlement and amending pooling and servicing agreements. It couldn’t hurt.
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Blockchain might not eradicate all problems in credit, but it should reduce human error
Bad blood spills into the CLO market
What has resulted in the case of the Revlon loan stand-off is disruption and bad blood. This spilled pretty quickly into the CLO market with Citi dropping out from arranging a Brigade deal to be replaced by Barclays. Citi holds a commanding lead in Creditflux’s US CLO league table, but I’m curious to see whether that remains once it’s through dealing with all these lawsuits.
If the ensuing wrangle escalates to such a level the incident will truly chime with Revlon’s broader banner call to “Be unforgettable”. For these prominent managers it certainly doesn’t look like being a ColorBurst 2010 case of “Love at first swipe”.
Meanwhile, my quest-fixated debt collector paces outside, drenched to the skin, trying to reach the council tax department and occasionally asking me if he can borrow a towel. I put on Bob Dylan’s Shelter from the Storm and check for updates on those beverage deliveries.
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