Monthly Commentary

Market & Portfolio Commentary - August 2021

23.09.2021

August was a fairly steady month in financial markets as US equity markets hit a new all-time high at the end of the month. There was some nervousness mid-month ahead of Jackson Hole, and fear around tapering. However, Fed Chairman Powell’s dovish tone gave risk assets a boost into month end. We saw some weakness in commodities though and crude was down for the first time since March as the spread of the Delta variant and softening macro data made investors question the pace of the recovery. On the flipside, we saw signs of progress on the Biden administration’s economic agenda as the US Senate passed the $550bn infrastructure package.

European Sub Investment Grade Highlights

Total loan issuance during the month of August was €0.3bn, compared to €2.2bn same month last year. August tends to be a quieter month due to summer holidays however last year saw higher activity as the leverage market caught up on lost ground earlier in the year. The year-to-date (“YTD”) loan issuance now stands at €95.6bn, considerably more than the €47.6bn issuance we saw in the first eight months of 2020. On the High Yield side, we saw €1.3bn of bond issuance during the month, bringing YTD issuance to €86.8bn.a

The Credit Suisse Western European Leveraged Loan Index return, hedged to Euro, was at +0.48% for the month, which brings YTD returns to +3.45%. Defensives (+0.46%) marginally underperformed cyclicals (+0.50%). CCCs underperformed all other rating categories at -0.61% while BBs returned +0.35%, single Bs +0.50% and unrated companies +0.79%. As at the end of August, the 3-year discount margin on the index was 405bps.

The Credit Suisse Western European High Yield Index, hedged to Euro, was up 0.36% for the month bringing YTD returns to +3.98%.b

In the month of August, the performing book was thematically characterized by optimization. With continued strength in the secondary market, we took advantage of demand across tightly-trading names and rotated into opportunities that offered more attractive current income. We reduced two term loan positions trading at recent tights, and with continued strength in the high yield market, reduced or exited four bond positions throughout the month. With this capital, we added three new names to the performing book in the primary market. The primary market continues to offer attractive pricing relative to where certain names with similar risk profiles trade in secondary, and we took advantage of the opportunity. Additionally, we topped up on an existing position trading at a discount, and also swapped out of a newly-issued healthcare bond into the issuer’s pari-passu term loan, capturing an attractive spread differential. As of August close, performing credit (including cash) was 43.9% of the portfolio, trading at a weighted average price of 99.9 and a YTM of 4.4%, whilst delivering a 4.4% cash yield to the portfolio.

The credit opportunities book was similarly active in the month of August despite the late-summer market slowdown. We continue to have success in deploying capital into credit opportunities despite compression in stressed credit markets globally. During the month, we reduced exposure in a bond backing a company that is being acquired, while also taking advantage of liquidity in a less-liquid bond that becomes callable in the near term. We deployed this capital into two new credit opportunities names during the month; one in the primary market, and the other in secondary. Both new names are well-known to the global CVC Credit platform, and offer attractive income at comfortable attachment points. We also added to an existing position at an attractive price that resulted from technical market pressure, which has since subsided. As of August close, credit opportunities was 56.1% of the portfolio, trading at a weighted average price of 94.1 and a YTM of 8.6%, whilst delivering a 7.4% cash yield to the portfolio.

Across the entire portfolio, as of August month end, the weighted average market price was 96.6, trading at a YTM of 8.3%, and delivering 7.9% cash yield (on a levered basis) versus a weighted average price of 93.6, YTM of 7.0% and cash yield of 6.6% as of December 2020. Floating rate instruments comprised 79.5% of the portfolio. Senior Secured 79.8%. The portfolio had a cash position of -1.8% (including leverage) with leverage at 1.3x assets.

The fund continues to build on year-to-date outperformance against relevant benchmarks. Our active trading and primary market pulse have ensured that the performing book is well-positioned to continue to generate strong income, and we continue to have success deploying into credit opportunities while maintaining convexity. With a significant amount of primary market supply anticipated this autumn, we remain diligent in our proven investment approach in an effort to ensure continued outperformance.

Important disclaimer and terms of use

These written materials are not for release, publication or distribution, directly or indirectly, in or into the United States, Australia, Canada, South Africa or Japan or to "U.S. persons" as defined in Regulation S under the US Securities Act ("US Persons"). The information contained herein does not constitute or form part of any offer or solicitation to purchase or subscribe for securities in the United States, Australia, Canada, South Africa or Japan or any other jurisdiction where to do so might constitute a violation of the relevant laws or regulations of such jurisdiction. The Company has not been and will not be registered under the US Investment Company Act of 1940, as amended (the "Investment Company Act") and, as such, holders of the Company’s securities will not be entitled to the benefits of the Investment Company Act. The securities discussed herein have not been and will not be registered under the US Securities Act of 1933, as amended (the "US Securities Act"), or with any securities regulatory authority of any state or other jurisdiction of the United States and may not be offered or sold in the United States or to, or for the account or benefit of, US Persons absent registration or an exemption from registration under the US Securities Act in a manner that would not require the Company to register under the Investment Company Act. No public offering of securities will be made in the United States. No securities may be offered or sold, directly or indirectly, into the United States or to US Persons absent registration or an exemption from registration under the US Securities Act and in a manner that would not require the Company to register under the Investment Company Act.

In addition, in the United Kingdom, these materials on this website are only being distributed to and are only directed at (i) persons who are outside the United Kingdom or (ii) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order") or (iii) high net worth entities, and other persons to whom they may lawfully be communicated, falling within Article 49(2)(a) to (e) of the Order (all such persons in (i), (ii) and (iii) above together being referred to as "relevant persons"). Securities to which the materials relate are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such securities will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on the materials or any of their contents.

Any communication on this website is only addressed to and is only directed at persons in any member state of the European Economic Area ("EEA Member State") where any required notification or registration for "marketing" as that term is defined in Article 4(1)(x) of Directive 2011/61/EU on alternative investment fund managers ("AIFMD") has been made and who are both:

  1. "qualified investors" in that Member State within the meaning of Article 2(e) of EU Prospectus Regulation (EU/2017/1129), as amended, including any relevant implementing measure in EEA Member State which has implemented the EU Prospectus Regulation; and
  2. "professional investors" in that EEA Member State within the meaning of Article 4(1)(ag) AIFMD.

A list of EEA Member States in which a notification or registration has been made for marketing to professional investors under AIFMD is available on request.

This website should not be accessed by persons in any EEA Member State who are "retail investors" within the meaning of Article 4(1)(aj) of the AIFMD ("retail investors").

Access to electronic versions of these materials is being made available on the webpage in good faith and for information purposes only. Making press announcements and other documents relating to any offering of securities available in electronic format does not constitute an offer to sell or the solicitation of an offer to buy or subscribe for securities, nor does it constitute a recommendation by any party to sell or buy securities.

By clicking on the "Accept" button, I confirm, represent, warrant and agree that:

I am not a US Person or located in the United States, Australia, Canada, South Africa or Japan or any other jurisdiction where to proceed to view the materials on this webpage would constitute a breach of securities law in that jurisdiction, and I confirm that I am permitted to view electronic versions of these materials; I will not forward, transmit or show the materials contained in this webpage to any US Person or person located in, or a resident of, the United States, Australia, Canada, South Africa or Japan or any other jurisdiction where it would be unlawful to do so; and I have read and understood the disclaimer set out above and will read carefully any additional disclaimers or important notices attaching to or forming part of the materials or information on this website. I understand that this may affect my rights, and I agree to be bound by their terms.

I am not a retail investor located in an EEA Member state.