Thursday, October 26, 2023 |
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Moody's and Proskauer produce mixed news on the default outlook. Plus: time to send us your 2023 highlights as we launch our awards process; and US firm Avante signs a partnership to grow its product range. Here’s today’s brief for our valued subscribers only.
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“Loans have had a very good year, up close to double digits and outpacing the returns of the high yield and investment grade markets”
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An assessment of leveraged loan performance in Man GLG's Q4 2023 Credit Outlook. |
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| Signs of trouble: negative ratings on the rise
Source: Getty |
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Moody’s says negative rating list is growing
A new Moody’s report (registration required) looks at B3 negative and lower corporate ratings, the so-called B3N List, and cautions that the list is expanding, both in absolute terms and as a share of the speculative-grade population.
The B3N List in the US reached 240 by end of Q3 2023. It is expected to increase further. In terms of its share, it accounts for just over 16 percent of speculative grade activity, compared with just 11 percent at around the same time last year.
Defaults among companies on the list have been higher than upgrades for each of the past 12 months. Defaults mainly involve distressed exchanges, Moody’s says. In the third quarter of 2023, DEs by leveraged buyouts accounted for 76 percent of all default-related rating actions on the list. Moody’s expects that this is a trend that will persist in the next 12 months, sustaining a rise in the default rate. The top three sector concentrations on the default list are: services, consumer products and healthcare.
The three-month moving average shows that there was a steady decline in the size of the B3N list in the final quarter of 2021 and through the first half of 2022. Since that time, though, movement has been in the other direction.
Prior periods of growth in this rate have predicted increases in the default rate, the report cautions.
But... defaults take another drop in US
There’s a kind of phony war these days when it comes to defaults. At the moment, there’s little to fight against – but the typical view of market sources is that it’s only a matter of time before this changes.
The current benign situation is to be found in the latest Proskauer Credit Default Index, which shows the default rate in the US falling to 1.41 percent in the third quarter of this year, down from 1.64 percent in the second quarter and 2.15 percent in the first quarter. The index tracks senior secured and unitranche loans in the US.
There was a distinction between larger companies and smaller companies in the Q3 figures, with the latter clearly faring best. While the rate for those with EBITDA of more than $50 million rose from 0.8 to 1.2 percent, the rate for companies with EBITDA of less than $25 million fell from 2.1 to 0.7 percent.
One interpretation is that default fears may have been overstated. Another is that problems are currently being masked by the application of ‘amend and extend’ provisions, but will eventually become apparent.
Awards: make sure you’re in the running
That time of year has rolled around very fast again, hasn’t it? Once more, we’re asking you to reflect on the year so far and send us your highlights ahead of shortlists being drawn up in no fewer than 50 categories for our Annual Awards.
This year, we have added categories for law firms – dividing their activity up into transaction work and fund formation work. We have also recognised the growth and increasing significance of the secondary market, with a new dedicated global category.
We don’t need to tell you that it’s been a fascinating year for private debt, with many firms citing a rapidly growing opportunity set as rising rates and macroeconomic volatility have shaken up some of the assumptions around who is best placed to provide finance and on what terms in given areas of the market. But while there is opportunity, there is also pressure – this year has been one where fundraising has been at its most challenging for a long time, for example.
We are asking for your highlights up until the deadline of Friday 17 November 2023. Please keep that date it mind, and don’t miss out! |
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PCG backs woman, minority firm Avante
Melbourne-based Pacific Current Group, which invests in boutique asset management groups, has partnered with Los Angeles-based Avante Capital Partners in a deal which will see PCG provide capital for Avante to expand its product range.
Avante is a woman- and minority-owned private credit firm that is focused on the lower mid-market and offers debt and structured equity to sponsored and non-sponsored companies. Products include senior stretch, unitranche, mezzanine and second-lien debt alongside minority equity for companies with EBITDA between $3 million and $25 million.
“Avante has demonstrated the competitive advantage derived from diversity and innovation in the private markets and we have leveraged these principles to build a strong track record with no loan losses since our inception in 2009,” said Avante founder Jeri Harman in a statement.
PCG, which is listed on the Australian Stock Exchange, has a portfolio of 16 specialist boutiques in Australia, India, Luxembourg, the US and UK, according to its website. New MD for Campbell Lutyens in London
Campbell Lutyens has appointed Pierre-Antoine Godefroy as a managing director in its fund placement team in London, with a focus on private credit.
Godefroy has more than 15 years’ experience in credit markets. He was most recently managing director, head of private credit at First Avenue and previously held positions at CQS, AXA and Calyon.
The private credit team at Campbell Lutyens is led by co-heads Jeffrey Griffiths and Richard von Gusovius. The team has more than 80 members globally and, in the 12 months to end of May 2023, had raised close to $29 billion across private equity, private credit and infrastructure funds, according to a statement.
Double client hire for ICG
Fund manager ICG has appointed Patricia Wilkinson and Salim Jaffer as managing directors in its client relations team, based in London. Wilkinson will lead client relations for ICG’s real assets strategies, while Jaffer will lead coverage of European and Asian corporate strategies.
Wilkinson was previously a partner at Sera Global, where she co-led the project management function across real assets for the firm’s private capital advisory business. Before that, she worked at Threadmark as a partner responsible for project management and origination, and Arle Capital Partners, as an investor relations director.
Jaffer had a 17-year spell at PIMCO, where he held a number of positions, latterly senior vice-president and product strategist focused on alternative investment strategies. In this role, he was responsible for the development, oversight and distribution of relevant strategies across EMEA, with a focus on alternative credit and private market strategies. |
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Institution: Kern County Employees Retirement Association Headquarters: Bakersfield, US
AUM: $5.5 billion Allocation to private debt: 4.5%
The Kern County Employees Retirement Association has revised its private debt pacing plan in order to ensure it reaches its target allocation.
The new pacing plan sees the US pension increase its target private debt allocation from 6 to 8 percent, which it is aiming to reach by 2026. KCERA is increasing projected commitments from $85 million to $150 million starting in 2024 until 2026.
Platinum subscribers may click here for the investor’s full profile, including key contacts, allocation strategy and fund investments. |
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PEI Group Ltd is registered in England no.6135779 Registered office: 5th Floor, 100 Wood Street, EC2V 7AN |
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