Loan Note: India changes insolvency rules, Sixth Street backs Biohaven, Alt lenders should not be locked out of recovery

India takes steps to reduce defaults among small businesses by changing its insolvency regime. Also, Sixth Street backs a biopharma company while the UK authorities are urged to involve alternative lenders in the country's coronavirus recovery. Here's today's brief for our valued subscribers only.

They said it

In the private direct lending markets, the 2.5-3y [year] average life of transactions means middle market borrowers from the 2015-2017 vintage deals must return to the market to refinance”

From the global credit 2020 midyear outlook authored by BlackRock’s chief investment officer and global co-head of credit, James Keenan, and the firm’s global co-head of credit, Tim O’Hara

First look

No new defaults in India

India is a country in which the economic fallout from the pandemic has been particularly severe. One the world’s largest microfinance markets, its government has had to make key changes to corporate insolvency rules to prevent cash-strapped small businesses going insolvent.

The government’s temporary freeze on business insolvencies means there have been no new business insolvency cases since April. Proceedings will remain suspended until September.

Also, the minimum amount for borrowers to be eligible for a default under the bankruptcy process has been increased by 100 times. The Ministry of Corporate Affairs said this was because it had foreseen large-scale financial distress emerging from small businesses.

Read more about it here.

A nice cash injection from Sixth Street

Sixth Street, the former credit arm of private equity firm TPG, announced this month that it was providing a non-dilutive structured term loan of as much as $500 million to Biohaven Pharmaceutical Holding, a publicly traded biopharmaceutical company. Under the facility, Biohaven will receive $375 million immediately and $125 million in the first or second quarter of 2021 when net sales of its FDA-approved drug to treat acute migraines, NURTEC ODT, are projected to reach $45 million.

Sixth Street, which separated from TPG in May, has more than $34 billion in assets under management and committed capital. Its flagship fund, Tao, has reportedly amassed $10 billion since it reopened to new investment in April, and now totals $22.5 billion, The Wall Street Journal reported last week.

Data snapshot

CLO derivatives on the rise. New data from John Sneisen have shown that the number of derivatives is rising, and particularly those backed by CLOs – with warnings of a “CLO apocalypse” coming when corporate debt is downgraded as a result of difficulties from the covid-19 crisis.


Don’t freeze out alternative lenders

UK clearing banks have been urged to not freeze out alternative lenders during the covid-19 crisis.

Douglas Grant, director of Conister Finance & Leasing, said a lack of engagement between clearing banks, the Bank of England and alternative lenders could see thousands of SMEs becoming insolvent because they cannot access emergency funding.

The UK government has made emergency loans available to help struggling businesses. However, banks do not always have sufficient resources to process emergency loan applications. Grant said that engaging more alternative lenders would enable a greater number of loans to be extended and prevent businesses from becoming insolvent.

LP watch

Institution: Montana Board of Investments
Headquarters: Helena, US
AUM: $21.52 billion
Allocation to alternatives: 14.9%

Montana Board of Investments has committed $260 million across three private debt vehicles, according to agenda documents from its August investment board meeting.

The commitments comprise $100 million to AG Commercial Real Estate Debt Opportunities Fund III and $50 million each to GT Distressed Co-Investment Fund III and OCP Asia Fund IV.

Today’s letter was prepared by John Bakie with Robin Blumenthal and Adalla Kim.