Loan Note: Big names seeking new jobs, Koenig on financing a pandemic, CLO ‘safe’ tranches take a hit

Why some of private debt's biggest names may be on the lookout for new job opportunities. Plus: Monroe's Ted Koenig on the financing panic within companies when the pandemic first hit; the growing strain on supposedly less risky CLO tranches; and the latest developments in distress.

They said it

“The availability of capital remains high and capital markets are open for business. This makes for a very unusual crisis”

Pedro Tavares, chief executive of Altimapa Capital. The London-based private debt broker has just announced the recruitment of four new team members, in keeping with its CEO’s bullish views

First Look

Watch out for some big moves

On the lookout: Pandemic has private debt pros polishing CVs

Maybe the English Premier League, La Liga and the Bundesliga attract more attention when it comes to high-profile transfers, but private debt firms may soon be making some headlines of their own. In a podcast with Will Invine of Stem7, we discover that some experienced investment professionals are considering pastures new. Surveying the damage covid-19 has done to portfolios – and, by extension, to expected compensation over the next few years – certain big hitters are considering their career options.

So who’s hiring? According to Invine, firms that have just raised funds; those that consider themselves well positioned, with flexible investment mandates or targeting sectors not badly affected by covid; and those with distressed and special situations funds.

Direct lending cures for a pandemic 
“We worked harder in 100 days than ever before,” said Ted Koenig, founder of Chicago-based fund manager Monroe Capital, reflecting on the arrival of the pandemic. Some of this work involved reassuring portfolio companies, Koenig said on the Managing Global Private Credit webcast hosted by BrightTALK. Many portfolio companies, remembering what happened with banks during the global financial crisis, hurriedly drew on expensive revolving credit facilities to make sure they had enough cash to get by.

In many cases, the panic was unnecessary. Direct lenders proved better able than the GFC-period banks to support businesses and point them towards cheaper funding options than revolvers – including government programmes. They also ensured as many cash savings were made as possible from deferred capex and by only making essential expenditure. Moreover, the banks are in better shape this time around and able to play their part in helping companies ride the storm. A somewhat calmer May and June has helped restore confidence, with fund managers seeing “very good economics” for new deals, according to Koenig.

CLO investors braced for bumps
“Every rational speed bump got kicked away,” says Daniel Zwirn, chief executive of fund manager Arena Investors, referring to the leveraged loan and CLO markets in our latest coverage of CLOs by Robin Blumenthal. Although many had tipped CLO equity to hit trouble in a downturn, the same was not expected of the entire capital structure. Expectations have been revised now that some of the supposedly safest tranches have tripped overcollateralised tests. There are tough times to come.

Data snapshot

Nice work if you can get it
Unemployment in the US rose higher in three months of the covid outbreak than it did in two years of the GFC, according to Pew Research. Of course, it’s not just the US – job losses are a grave concern all over the world. Nor have PE-backed companies been spared, as this chart from sister title Private Equity International shows.

Essentials

Everyone’s feeling the pressure
This month’s cover story on dislocation funds raises the question of where the greatest stress is to be found: within the covid-hit companies that these funds will be targeting, or within LP organisations given minimal time to conduct (remote) due diligence before making commitments. Among those expressing a view is Rohit Kapur, pensions investment research manager at UK energy and services firm Centrica: “I started to add these to our pipeline tracker and quickly realised it was a large number and only getting bigger.”

A fund manager is for life
Still on the theme of distress, this article from Alex Odysseos of Houlihan Lokey urges investors to look beyond the short-term discount opportunity on public markets and ask whether managers have what it takes to invest the money sensibly over what may be a two- or three-year timeframe.

LP watch

Institution: School Employees’ Retirement System of Ohio
Headquarters: Columbus, US
AUM: $14.21bn
Allocation to alternatives: 27.1%

School Employees’ Retirement System of Ohio has confirmed $150 million-worth of private debt commitments to three vehicles, a contact at the pension informed Private Debt Investor.

The commitments comprise $50 million to KKR Dislocation Opportunities, and a top-up of $50 million each to HPS Specialty Loan Fund V and LBC Credit Partners V.

The pension’s recent commitments are to funds focused on the corporate sector within North America and Europe.


Today’s letter was prepared by Andy Thomson with John Bakie, Robin Blumenthal and Adalla Kim