News & Documents

Investment Vehicle Manager Market & Portfolio Commentary – October 2019

03.12.2019

Risk appetite returned to the markets in October with equities approaching all-time highs. There were a number of drivers for the improved sentiment. First of all, the US and China seem to be heading towards 'phase one' of a trade deal after a positive meeting between Trump and Xi. Secondly, the Brexit deadline was delayed again and there was some progress on the Withdrawal Agreement. Also, Q3 earnings season started more positively than the market had anticipated. Finally, we also saw Central Banks active again in October with the Federal Reserve reducing its base rate by another 25bps.

European Sub Investment Grade Highlights

  • October leverage issuance was €27.14bn, well ahead of the market-driven weak new issuance of €10.34bn of Last Year ("LY"). For context, the size of new issue in October 2017 was €28.29bn. Monthly volumes were €15.92bn in loans (€5.72bn LY) and €11.2bn in High Yield ("HY") (€4.62bn LY).a
  • 2019 loan volumes have been 55% acquisition and 44% refinancing, with the balance for general corporate purposes. Euro denominated issuance comprised 93% of the volumes for the month, GBP 6% and 1% others. Deal volume has been 20% France, 17% UK, 12% Spain and 11% United States.a
  • 2019 bond volumes have been 67% refinancing and 17% M&A, with the balance for general corporate purposes. Sources of funding were 51% secured, 48% unsecured, with the balance being subordinated bonds. Composition was 92% Euro, 7% GBP, with the balance being others. YTD issuance has been 54% BB, 34% B and 7% split, with the balance being others. Deal volume has been 19% UK, 15% France, 12% Germany, 10% Netherlands and 9% Italy.a
  • TL B new issue spreads in October were E+389bps, in a similar range to what has been seen throughout 2019. Average net leverage was stable at 4.99x, which is 0.39x lower than LY and compares with 5.0-5.8x which we have seen during the year through to September 2019.a
  • In the HY space, single B debt issued in the last 3 months priced at 4.03% yield, which compares with 6.74% for Q4 2018 (271bps tighter) and 4.82% for Q3 2019. For the BB space the YTM on a rolling 3-month basis was 3.04%, 91bps tighter than the new issue for Q4 2018. The spread between BB and B new issue has come in from 279bps in Q4 2018, to 194bps in Q3 2019 and now just 99bps at October 2019.a

Unlike equities, the European sub investment grade credit had a mixed month in October. The Credit Suisse Western European Leveraged Loan Index hedged to Euro was down with a return of -0.35% in October, bringing YTD returns to 3.82%. There was a big divergence between BB rated loans which returned 0.06% for the month and single B rated loans which returned -0.49% for the month.

The Credit Suisse Western European High Yield Index hedged to Euro returned 0.02% for the month, bringing YTD returns to 9.11%. Similar to loans, we saw BBs outperform with 0.21% return for the month, while single Bs were down -0.36%.

Across the performing credit portfolio, leading into year end and in light of some leading indicators, primary activity remains focused on defensible sectors in higher rated large liquid senior secured parts of the capital structure. In addition, secondary activity in the performing segment continued to rotate HY names on relative value positioning given the strong performance post Central Banks’ support.

The credit opportunities portfolio continues to be actively managed with focus on recycling situations where the catalyst has played out, and managing the structured finance positions again as we lead into year end. As discussed in previous monthly reports, there have been a number of restructuring processes which have been actively worked on, and which are expected to drive performance in the future. With one situation exiting its process on 1st October, as we head into year end, we have line of sight on another name concluding, being another favourable outcome to lenders.

As of October close, performing credit (including cash) was at 60.6% of the portfolio with a weighted average price of 99.5, trading at a YTM of 4.6%, delivering 4.3% cash yield to the portfolio. Credit opportunities was at 39.4%, closing the month at a weighted average price of 86.1, trading at a YTM of 9.6%, and delivering 6.9% cash yield to the portfolio.

Floating rate instruments comprised 86.2% of the portfolio. Senior Secured 79.3%. The current yield is 5.9% (gross) with a weighted average market price of the portfolio of 93.5 versus 90.4 as at 31 December 2018. The cash position was at 7.9% compared to 15.3% as of the start of the year.

a S&P LCD – November 2019

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 US 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 US Investment Company Act 1940. 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 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 US Investment Company Act of 1940.
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.
In any EEA Member State that has implemented Directive 2003/71/EC (together with any applicable implementing measures in any Member State and amendments thereto, including the Directive 2010/73/EU, to the extent implemented in the relevant Member State, the “Prospectus Directive”) any communication on this website is only addressed to and is only directed at qualified investors in that Member State within the meaning of the Prospectus Directive.
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.