Loan Note: Funds buying banks, what lurks in CLOs, ESG essentials

Bain has done what might have once been unthinkable and purchased a bank. Meanwhile, CLOs may contain many of the worst performing public companies in the US, which could be a worry for investors.

They said it

“We have… seen an early rebound in investment activity as lockdown measures have eased and business activity resumes”

Benoît Durteste on the rapid recovery he is seeing from coronavirus lows

First Look

Bain buys bank

Little piggies gone to market: banks are getting bought up

Bain Capital Credit has done something many may have thought impossible a decade ago. In a deal reached with the Austrian government the fund manager will acquire all of Hypo Alpe Adria Bank, which was split from various parts of its parent bank, including a bad bank, back in 2009.

It was perhaps inevitable, given the decline of the banking sector and the rise of alternative lenders, that we would see fund managers buying banks, rather than the other way round. However, it is worth nothing that the bank was no longer really involved in banking and had instead specialised in the management of NPL portfolios, which is why Bain decided to pick it up.

To get the full details of why Bain bought the business, click here.

Cruising along in the CLO market?
Some of the worst-performing public companies also have a significant presence in the CLO market. That’s according to Trepp, which cited a list compiled by Forbes of the companies whose shares suffered the biggest declines in the first half of the year.

Carnival Cruise Line, which saw its stock plunge more than 67 percent during the period, in late June issued an €800 million loan in the European Union and a $1.86 billion loan in the US, which were then syndicated. Trepp noted that trustee reports indicated a pick-up in July in the credits of the battered cruise ship operator, which reported a whopping $4.4 billion loss in the second quarter. The CLOs were recently quoted in the mid-$90s by IHS Markit. Among the other poor performers represented in the CLO market: United Airlines, Coty and Xerox.

Data snapshot

Offices on the way out. An internal survey by Barings found that half of real estate professionals expect companies to significantly reduce their office space as a result of covid-19. This could influence lenders’ decisions over which real estate projects to back, with residential needs expected to grow to incorporate home office space.

Essentials

ESG inextricably linked to investment objectives
Canada Pension Plan Investment Board has updated its policy on sustainable investment, saying it believes environmental, social and governance risks are increasingly important to its outlook.

ESG issues have been rising up the priority list for institutional investors for some time, and CCP Investments’ head of sustainable investing, Richard Manley, said: “ESG considerations are inextricably linked to our ability to successfully achieve our investment objectives. Our policy reflects the growing body of evidence showing that companies that integrate consideration of ESG-related business risks and opportunities are more likely to preserve and create long-term value.”

CCP will ask companies in its portfolio to report on material ESG risks and opportunities relevant to their respective industries and business models. It has also said it wants firms to align their reporting with the Sustainability Accounting Standards Board and the Task Force on Climate-related Financial Disclosures.

The move shows that ESG may no longer be something simply used to promote investments but will instead be something that is necessary to secure new commitments from major institutional investors.

LP watch

Institution: Korea Post
Headquarters: Sejong-si, South Korea
AUM: 133.85 trillion Korean won
Allocation to alternatives: 6.0%

Korea Post Insurance, the investment unit of Korea Post, has issued a request for proposal for real estate fund managers with a focus on mezzanine strategy.

The firm aims to commit a total of $200 million to one or two managers targeting mezzanine strategies such as mezzanine loans, B-notes and subordinated debt.

The successful firms should have at least $10 billion invested in global real estate, with five years of management experience in global real estate mezzanine funds. The fund should also have a net internal rate of return of at least 6 percent.

The submission deadline is 19 August with a decision put forth to the investment committee planned between September and October.

Institution: New Jersey Division of Investment
Headquarters: Trenton, US
AUM: $74.05 billion
Allocation to alternatives: 27.80%

New Jersey Division of Investment agreed to commit up to $150 million to Owl Rock Diversified Lending 2020 fund at its July investment council meeting, a contact informed Private Debt Investor. Along with the commitment, the pension acquired a partial equity ownership stake in Owl Rock Capital Diversified Holdings.

The $74.05 billion US public pension currently allocates 7.30 percent of its investment portfolio to private debt. Alternative investments constitute 27.80 percent of the institution’s entire portfolio.


Today’s letter was prepared by John Bakie with Robin Blumenthal

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