They said it

“Stagflationary environments have not been kind to credit, with returns being negative on average when the growth backdrop deteriorates”

A group of Barclays strategists led by Dominique Toublan warn of the risks stagflation poses to credit markets

First look

Pemberton completes first CVC-sponsored deal
European credit manager Pemberton has supported CVC’s acquisition of sintered stone services provider Neolith.

Pemberton has been a lender to Neolith since 2019, when it financed Investindustrial’s acquisition of the company.

The deal is Pemberton’s first with CVC Funds, which acquired Neolith after Investindustrial put the company up for sale. The investment was made through its European Mid-Market Debt Fund.

Leticia Ruenes, head of Spain at Pemberton, said: “Neolith represents the type of opportunity that we seek out – a company with a leading position within a rapidly growing market, high-quality and differentiated products, and an expanding global footprint. We are pleased to continue our partnership with the company. We are also delighted to partner with a leading sponsor such as CVC Funds and hope this represents the first of many deals together.”

Neolith was founded in 2009 in Castellón, Spain. It was founded to design and produce large-format sintered surfaces created from natural raw materials. It serves the high-end market in bathrooms, wall cladding, furniture, flooring and facades, with a particular focus on kitchens.

Pemberton said the company fits well with its ESG strategy because its products are plastic-free and fully recyclable.

Recession highlights differences in public and private credit
There is structural bifurcation between public and private credit markets as public debt and equity markets suffer sharp declines, according to a recent investor note from KKR.

KKR’s Chris Sheldon, partner and co-head of credit and markets, said liquid markets are seeing increasing redemptions on the basis of asset allocation rebalancing, which is contributing to downward pricing pressure. Volatility is being exacerbated due to few new flows coming in, a lack of CLO creation and a lack of forward pipeline.

In contrast, private markets have seen a less immediate and noticeable mark-to-market impact as a risk-off sentiment permeates markets.

While private markets are beginning to adjust to the public market drawdown, they have experienced less volatility, largely due to less of an ability to force sell assets.

“More importantly, the private markets continue to exhibit steady leadership,” Sheldon wrote. “As we think about dispersion between public and private markets, it has become more apparent that there has been a structural breakdown in public markets, and as a result, they have experienced the brunt of this market’s wrath.”

KKR believes this situation will persist in the near term as the US and Europe enter recession and growth remain challenged. While it is expected that central banks will have to keep rates higher for longer, a deep recession may prompt a more dovish approach.

“So, amidst the fog and slog of this market, we are cautious, but also feel conviction that there are now attractive entry points into both public and private credit,” Sheldon added.

Essentials

Mesirow leads financing for NASA HQ
Real estate lender Mesirow has led a $275 million financing of NASA’s Washington DC headquarters.

The property at 300 E Street SW is owned by Hana Alternative Asset Management and managed by Ocean West Capital Partners, and is the sixth largest general services administration lease in the US.

The finance package features fixed rate pricing on debt to be repaid on an interest only basis until its 2028 maturity date, coterminous with NASA’s lease. The financing allowed the recapitalisation of the equity interest in the property.

“Executing in today’s debt markets presents a degree of challenge that we are proud to have met through close partnership and collaboration across several unique facets of the Mesirow franchise, including our muni desk and the more traditional CRE fixed-income sales and trading channels,” said Nat Sager, president of Mesirow Capital Markets.

Mesirow served as placement agent and administrative agent on the finance while Cushman & Wakefield advised the borrower.

LP watch

Institution: Maine Public Employees Retirement System
Headquarters: Augusta, US
AUM: $18.8 billion
Allocation to alternatives: 40.8%

Maine Public Employees Retirement System approved a $30 million commitment to Sprott Private Resource Lending III, a contact at the pension informed Private Debt Investor. The commitment is subject to final due diligence by the pension fund.

The fund, managed by Three Valley Copper, will invest in North American companies and seek subordinated/mezzanine debt returns.

The US public pension’s recent fund commitments have predominantly targeted North American vehicles focused on a variety of sectors.

Institution: Montana Board of Investments
Headquarters: Helena, US
AUM: $23.8 billion
Allocation to Private Investments: 17.34%

Montana Board of Investments has confirmed a $75 million commitment to Tree Line Direct Lending III, according to its August board meeting materials.

Founded in 2014, Tree Line Capital Partners is a San Francisco-headquartered private credit asset management firm that targets mid-market and private debt investment opportunities across North America. It launched its third direct lending fund in June 2021 with a target size of $450 million, and held a first close in July 2021 on $120.8 million.

Montana Board of Investments has a 17.34 percent allocation for private investments, comprising of $4.1 billion in capital, which includes both private debt and private equity.

In 2019, MBOI committed $50 million to the previous fund in the series. The fund closed in September 2019, having received $187 million in investor capital.

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