Monthly Commentary

Investment Vehicle Manager Market & Portfolio Commentary – April 2019

30.04.2019

Global risk markets ended April in positive territory, seeing US equity markets reaching a fresh record high on stronger than anticipated Q1 earnings. Sentiment was also boosted by solid US economic indicators for the first three months of 2019, an easing of US-China trade concerns, signs that Chinese stimulus measures are working, and better than expected economic data coming out of Europe.

The pivot by central banks toward more accommodative monetary policy continued, with many leaning towards lower interest rates again, supporting risk sentiment through April.

European Sub Investment Grade Highlights*

  • April leverage issuance was €11.55bn, continuing to be short of issuance Last Year (“LY”) which was €16.13bn. Monthly volumes were €2.52bn in loans (€5.59bn LY) and €9.03bn (€10.54bn LY) in High Yield (“HY”).
  • 2019 loan volumes have been 70% acquisition and 14% refinancing, with the balance being recaps. Euro denominated issuance comprised 96% of the volumes for the month, and GBP 4%.
  • 2019 bond volumes have been 60% refinancing and 7% M&A, with the balance for general corporate purposes. Sources of funding were 33% secured, 66% unsecured and 1% subordinated bonds. Composition is 94% Euro with the balance being GBP.
  • TL B new issue spreads in April were E+401bps, which has been largely stable in 2019. April pricing was 44bps wider than the corresponding period LY. Average net leverage was stable at 5.6x, which was 0.3x higher than the corresponding period LY.
  • In the HY space, single B debt issued in the last 3 months to April 2019 was priced at 4.58% yield, compared to 5.45% for Q1 2018. For the BB space however the YTM on a rolling 3-month basis was 3.07%, c.90bps tighter than the new issue for Q4 2018, a flight to quality.

The Credit Suisse Western European HY Index hedged to Euro was up with a return of 1.52% for the month taking YTD to 6.98%. The Credit Suisse European Leveraged Loan Index hedged to Euro was up 0.98% for the month taking YTD to 3.02%.

Broadly the portfolio continued to allocate to the new issue market in performing credit, and focused on working through a number of single name processes in the credit opportunities portfolio. In addition, with the continued strength of the HY market, the portfolio took advantage of selling down positions which had rallied through 2019 and were trading tight to its historic levels.

As of April close, performing credit (including cash) holds a 61.0% allocation with a weighted average price of 99.8, trading at a YTM of 4.7%, delivering 4.7% cash yield to the portfolio. Credit opportunities maintained a 39.0% allocation to the strategy, closing the month at a weighted average price of 85.8, trading at a YTM of 10.7%, and delivering 7.0% cash yield to the portfolio.

At the end of April, floating rate instruments comprised 85.7% of the portfolio. The current yield is 6.4% (gross) with a weighted average market price of the portfolio of 93.9 versus 92.6 as at 31 March 2019. Cash position was 3.2%, down from 7.8% as at 31 March 2019.

* Sources: S&P LCD – May 2019

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