Loan Note: Investcorp bullish on large loan issuance; Kudu wraps up latest stake purchase

An Investcorp report finds strong demand continuing for leveraged loans. Plus: two more fund manager stake sales and the latest deals and hires. Here's today's brief for our valued subscribers only.

They said it

“The combination of strong earnings clashes with rising interest rates, resulting in the S&P 500 making no progress in 2022.”

The first of Ten Surprises of 2022 penned by Byron Wien and Joe Zidle of Blackstone. Wien is a vice-chairman and Zidle chief investment strategist in the firm’s private wealth solutions group.

First look

Investcorp bullish on large-cap leveraged loans
A new report from fund manager Investcorp Credit Management is bullish on prospects for the leveraged loan market due to what it says is strong demand for the asset class. The firm is particularly positive about inflation-busting larger loans.

“We strongly believe that through careful portfolio construction, in particular a focus on larger-cap issuers and avoidance of high inflation risk sectors, along with active portfolio management, we can position our leveraged loan portfolios to cope with inflationary impacts while benefitting from potential rate rises,” says Jeremy Ghose, managing partner and chief executive officer at Investcorp Credit Management.

The report predicts that the global environment for credit will remain favourable throughout the first quarter of the year and that the market’s strong inflows of capital, especially in the US, can be attributed to the perceived benefits of rate rises on leveraged loans. On the downside, the report says rate rises may create additional risk from increased borrowing costs over the medium term, which may lead to greater credit risk. This scenario favours large-cap issuers over smaller-cap issuers, according to Investcorp.

The report found both the US and European collateralised loan obligation markets heading towards record levels of issuance, with continuing high levels of M&A activity boosting the credit issuance market through 2022.

Stake sales keep coming
In Monday’s edition of Loan Note, we identified the growing trend of stake sales in private debt. No sooner had we hit “publish” than we learned that Kudu Investment Management had purchased a minority stake in Radcliffe Capital Management for an undisclosed amount (see a Kudu news realease here).

Founded in 2015 and backed by White Mountains Insurance Group, Kudu has now made investments in 19 asset management and wealth management firms, committing more than $650 million in capital to the partnerships. Kudu’s partner firms are based in the US, Canada, UK and Australia.

Founded in 1996, Pennsylvania-based Radcliffe manages more than $3.5 billion for institutional and high-net-worth clients and specialises in defensive credit and opportunistic strategies. These strategies include short and ultra-short duration bonds, business development company bonds and Special Purpose Acquisition Company portfolios.

In addition, today saw credit and real estate investor Arrow Global take a “significant minority stake” in specialist development lender Maslow Capital (see story here). Both firms are based in the UK.

Essentials

Carlyle deal takes off
Global investment firm Carlyle announced in December that Maverick Aviation Partnership, an investment vehicle managed by Carlyle Aviation Partners, signed an agreement to acquire AMCK Aviation’s portfolio of aircraft. Through the transaction, Maverick will acquire 125 primarily narrowbody aircraft and an order book of 20 A320/321neo aircraft. The total appraised value of the existing fleet is in excess of $4 billion, not including the order book.

William Hoffman, chairman of Carlyle Aviation Partners, said: “We are pleased to acquire AMCK’s attractive portfolio, comprised of primarily narrowbody aircraft whose lessee counterparties have performed well in the covid operating environment. This transaction will help us enhance our capabilities for airline customers and all of our investors across the Carlyle Aviation platform.”

Mizuho set to buy Capstone 
Mizuho Americas has signed an agreement to acquire Capstone Partners, a an independent, mid-market placement agent focused on fundraising and advisory services to private equity, credit, real assets and infrastructure investment firms. Financial terms of the transaction were not disclosed. The deal is expected to close in the first half of 2022, subject to regulatory approvals.

The deal grows Mizuho Americas’ presence in the alternative investment market, and bolsters the bank’s capital raising and distribution capabilities through Capstone’s global network of more than 1,500 limited partners across the US, Europe, and Asia. The firm added that the deal offers expanded opportunities for cross-selling complementary investment banking solutions.

Ares hires MD from Nuveen
Global alternative investment manager Ares Management has hired Jeffrey Hughes to join its credit group as a managing director.

Hughes will lead the firm’s effort to source and manage privately placed investment grade credit investments to service Aspida, an indirect subsidiary of Ares that provides insurance solutions, and other clients. He will focus on investments targeting industries including real estate, asset management, insurance, financial services, infrastructure, industrials, sports, media and entertainment.

“We are very pleased to have Jeff join us as we continue to build broader investment portfolios for Aspida and our insurance clients,” said Kipp deVeer, partner and head of the Ares Credit Group. “His relationships and investment experience in these markets will enhance our capabilities in both direct lending and alternative credit.”

Hughes joins from Nuveen, where he served as a senior director responsible for sourcing, underwriting and managing a portfolio of private placements. Before Nuveen, he was a vice-president at Alliance Bernstein, where he focused on investment grade private placements and high-yield bank loans.

LP Watch

Institution: Pennsylvania Public School Employees’ Retirement System
Headquarters: Harrisburg, US
AUM: $72.5bn
Allocation to alternatives: 33.2%

Pennsylvania Public School Employees’ Retirement System has approved $500 million in commitments across three private debt vehicles, according to a press release issued by the organisation.

The commitments comprise €200 million to ICG Europe Fund VIII SCSp, $150 million to Sixth Street Opportunities Partners V and $125 million to Bain Capital Special Situations Asia II.

Intermediate Capital Group launched Fund VIII in May 2021 with a €7 billion target size, and had raised €6 billion for the vehicle as of November 2021. ICG Europe Fund VIII will invest in subordinated debt, senior debt, structured debt and equity in French, Italian, Spanish, UK, DACH, Scandinavian and Pan-European upper mid-market companies across a variety of sectors.

Sixth Street launched its fifth-series fund in June 2021 with a $3.5 billion target size. Sixth Street Opportunities V continues the strategy of thematic, control-oriented, actively managed investments with a significant focus on downside protection. The fund has the flexibility to invest across geographies, primarily in North America and Europe.

Bain Capital launched SSA II in March 2021. The fund seeks to generate attractive risk-adjusted returns by capturing value in complex situations and mis-priced assets by providing creative solutions to address capital shortfalls across Asia. It adopts an opportunistic strategy that can dynamically pivot between thematic opportunities and geographies across Asia as they become attractive.

PSERS currently allocates $5.66 billion to private debt investments, comprising 7.8 percent of its total investment portfolio. The public pension has a target allocation to private debt of 6 percent.

PSERS’ recent private debt commitments have focused on corporate distressed and mezzanine vehicles which invest globally.


Today’s letter was prepared by Andy Thomson with John BakieRobin Blumenthal and Michael Haley.