Loan Note: Apollo’s pulling power, Investcorp in Italy, tracking defaults

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They said it

“It is critical for firms like Ares to have proper policies and procedures in place to address … risks and prevent the misuse of information”

The Securities and Exchange Commission statement on its $1 million settlement with Los Angeles-based Ares Management. Click here for a detailed analysis of what happened.

First Look

 

Braced for the worst

The good news? Law firm Proskauer has shone a light on private credit defaults with the launch of a new index. One up for greater transparency.

The quarterly index will track default rates of senior secured and unitranche loans across 576 active exposures in the US worth approximately $95 billion.

Proskauer says the increased importance of private debt as a source of funding for companies means the index will be critical. The bad news? With the coronavirus crisis expected to lead to a spike in defaults across all types of debt, the index may provide an unsettling insight into the toll covid-19 is taking on businesses and investors.

Even at the end of Q1, when the crisis was only simmering, the index revealed a high overall default rate of 5.9 percent – compared with a historical average of around 2.0 percent. With the crisis boiling over through April and May, the Q2 index may be grim reading indeed.

Saying yes to distress

Opportunity often knocks quickly in a dislocated market, when the distinction between the “haves” and the “have-nots” becomes painfully clear. Apollo Global Management, a PE and credit behemoth, proved that in spades when it recently raised $1.75 billion for a distressed credit fund in just two months. Time was of the essence: the firm had called 75 percent of the predecessor fund’s capital in just seven business days in March as high-yield spreads doubled.

Investcorp’s Italian job

Italy’s non-performing loan mountain had not been seriously chipped away following the global financial crisis and is now set to grow even higher thanks to covid-19. Investcorp has just closed its second fund focused on Italian NPLs on €340 million. It seems timely. “There are compelling opportunities to acquire attractive loans at significant discounts,” says Investcorp portfolio strategist, Elena Ranguelova.

Data snapshot

No pain, no gains. Distressed debt is where it’s at, and the chart below from Oxane Partners, which canvassed investor opinion, shows the trend clearly. To see Oxane’s full report on private markets and covid-19, click here.

Essentials

Dislocation proliferation

The latest dislocation fund arrives via a $4 billion whopper from KKR. It may be the biggest but it wasn’t first on the scene. See details of these existing raises from AlbaCore, Arena Investors and Pemberton.

The latest convert to private debt

Banks have seen a steady flow of professionals disappear to private debt since the GFC. The latest is Associated Bank’s Marc Pressler, who heads to Monroe Credit Advisors – an advisory arm of Chicago’s Monroe Capital – to focus on originating mid-market debt and lease transactions.

Dig Deeper

Institution: Alaska Permanent Fund
Headquarters: Juneau, United States
AUM: $62.62bn
Allocation to alternatives: 27.92%

Alaska Permanent Fund has approved $250 million of private credit commitments. It is making a $200 million commitment to Kayne Anderson Real Estate Opportunistic Debt and a $50 million commitment to HIG WhiteHorse Direct Lending Fund – 2020, according to its May board meeting packet. The $62.62 billion sovereign wealth fund has a 2.8 percent target allocation to private debt that currently stands at 2.3 percent.

Last year we named Alaska senior portfolio manager Jared Brimberry among our inaugural list of 30 rising stars. Read the profile here.

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Correction: the original version of this note incorrectly identified the settlement between Ares Management and the SEC as being $1 billion. The correct amount is $1 million, as above.