Loan Note: Multiple moves on ESG; Ares withdraws interest in AMP

ESG and impact are very much on the minds of private debt fund managers and investors – below is the evidence. Plus, Ares retains interest in AMP Capital but not AMP as a whole, and why the asset class may not be out of the woods on defaults. Here's today's brief for our valued subscribers only.

She said it

“As the focus shifts from stabilisation to economic recovery, supporting business growth will be a fundamental driver of a thriving post-covid-19 UK economy. Ensuring that businesses can access the funding best suited to their needs will be vitally important in the coming years and private debt has an important role to play.”

Catherine Lewis La Torre, chief executive officer of the British Business Bank, in a statement accompanying a report by the bank into the significance of private debt for the UK economy (see here).

First look

Multiple moves to embrace ESG
Environmental, social and governance issues and impact investing are increasingly front of mind for private debt fund managers and investors – at least the weight of announcements around these topics would suggest so. Here are just some of the developments we have noted over the past week or two:

  1. M&G set up a new 25-strong investment team called Catalyst to target sustainable assets in credit, as well as equity and real assets (see here). Areas of interest will include SME and consumer finance as well as asset and development financing.
  2. The amount of capital allocated to private markets assets with a commitment to ESG has increased from $128 billion in 2011 to $468 billion in 2020, according to a new study from fintech firm Broadridge Financial Solutions. It identified private debt as the fastest-growing segment.
  3. One third of investors say their focus on ESG issues has increased as a result of the pandemic, according to research from consultants bfinance (see here). Only a fifth of investors are not actively considering how to implement carbon-footprinting across their portfolios.
  4. The European Leveraged Finance Association teamed up with the Principles for Responsible Investment to hold a workshop on ESG topics as they aim to “increase ESG disclosure and deepen engagement on financially material factors” in the leveraged finance market. Read the press release here.
  5. Lombard Odier Investment Managers, the asset management business of Swiss private bank Lombard Odier, has hired Peter Pulkkinen and Rhys Marsh in the US to develop what the firm describes as “a range of sustainable private credit strategies”.
  6. LBO France-backed Moustache Bikes, a French electric bikes firm, took on €41.5 million of extra senior debt and revolving credit supported by impact-focused private debt funds from the likes of Eiffel, Amundi, Scor and Schelcher (see more about the deal here).

Ares pulls of out AMP bid, retains interest in AMP Capital
Los Angeles-based Ares Management, private debt’s most prolific fundraiser according to the PDI 50, has pulled out of a possible bid for the whole of AMP, the Australian financial services company. In an AMP statement here, the firm said Ares had decided not to proceed with a non-binding indicative proposal it had put forward last year.

However, the statement also noted that Ares “continues to engage constructively” in relation to AMP Capital, AMP’s asset management business which is strong in areas such as real estate and infrastructure. AMP has been beset by problems which have sent its share price tumbling and is involved in a review of its portfolio. See Bloomberg’s take here (paywall).

Ares has been expanding into Asia-Pacific, notably acquiring Hong Kong-based alternative assets manager SSG Capital last year to form Ares SSG.

Defaults declining – at least for now
Is the crisis over already? Proskauer’s latest Credit Default Index shows the level of defaults in senior secured and unitranche loans falling to 3.6 percent in the fourth quarter of last year. This represents a continuing improvement from the second and third quarters, which had default rates of 8.1 percent and 4.2 percent, respectively. See press release here.

“The decline in the default rate reflects the improvements we are seeing across our practice. Private credit lenders are continuing to work with their borrowers to provide the liquidity and flexibility that they need to navigate through these uncertain times,” said Stephen Boyko, co-chair of Proskauer’s corporate department and private credit group.

That is the good news. Worth bearing in mind, though, that the default rate was typically around the 2 percent mark pre-covid, so today’s success story is relative. Furthermore, let’s not forget the support schemes which have propped up companies in the short term which may yet, in the longer term, fall over. It is perhaps a little too early to breathe a sigh of relief.

Data snapshot

Bouncing back. Private debt deal volumes in Europe saw a sharp rebound in the final quarter of 2020, according to figures from investment bank GCA Altium. Deal volumes in Q4 were almost double Q3 as transactions were able to restart following disruption related to covid-19. Germany and the UK saw a particularly strong recovery.


Leveraged loan market proves resilient
Europe’s leveraged finance markets held up well during the last two months of 2020. The period delivered total issuance of $17 billion, a 21 percent increase compared to the $14 billion in November/December 2019, according to Kristin Yeatman, VP-senior analyst at Moody’s Investors Service.

Bond issuance of $11 billion exceeded loans by 83 percent, similar to 2019 levels. Overall, total 2020 issuance of $170 billion outpaced 2019 issuance by around 6 percent, despite the sharp drop in activity in March and April, illustrating the primary market’s speedy recovery and resilience to the coronavirus pandemic.

You can also find a detailed analysis of the flight to quality in the European leveraged finance market from law firm White & Case here.

Stepping up at StepStone
Consultant StepStone has announced four promotions in its private debt team: Ariel Goldblatt and Jan Kuhlmann to partner, and Orla Walsh and Alesia Dawidowicz to managing director. Kuhlmann and Dawidowicz are both based in Zurich, while Goldblatt is in New York and Walsh in London.

LP watch

Institution: New Hampshire Retirement System
Headquarters: Concord, US
AUM: $9.9 billion
Allocation to alternatives: 28.5%

New Hampshire Retirement System has approved a 10-year commitment pacing plan, according to the pension’s January 2021 investment committee meeting document. The pension aims to gradually reduce its current allocation towards its target and also maintain vintage year diversification.

The $9.9 billion US public pension plans to commit $70 million to private debt during the rest of 2021 then make ensuing annual commitments of $170 million.

NHRS has a 5 percent target allocation to private debt that currently stands at 6.1 percent. The pension’s director of investments is Lawrence Johansen and its investment consultant is Callan LLC.

Today’s letter was prepared by Andy Thomson with John Bakie and Robin Blumenthal.

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