Loan Note: Private markets favoured in new survey; CMBS delinquency rate rising

They said it

“We continue to favour floating rate exposures with structural protections (highly rated CLOs, senior direct lending), and recommend selectively adding leveraged loans”

Amanda Lynam, head of macro credit research at BlackRock Alternatives, quoted in the latest BlackRock Alternatives Global Credit Weekly

First look

Investor preferences revealed: tech and healthcare take a big slice (Source: Getty)

Tech and healthcare top investor preferences
“Choose your sectors carefully” is one message arising from Adams Street Partners’ 2023 Global Investor Survey.

It found that 63 percent of investors strongly agreed that sector expertise was critical to private equity performance, up 14 percent on the response in last year’s equivalent survey. Technology and healthcare were cited as offering the best investment opportunities in private markets this year by 40 percent, ahead of impact/ESG and venture capital (both 33 percent).

There is near unanimity on the likely outperformance of private markets over public markets, with 86 percent tipping the former to do better than the latter. The biggest challenges are perceived to be rising interest rates/inflation (55 percent), market volatility (46 percent) and geopolitical tensions (29 percent).

More than half (58 percent) said they expected inflation to have a high impact on their private markets investment strategy in 2023.

The survey found ESG is seen as less of an investment challenge this year (22 percent, down from 29 percent). It’s not clear whether this is because fund managers have got more on top of the issue, or it has moved down investors’ priority lists.

CMBS delinquency rate rose 18 points in February
The overall US CMBS delinquency rate rose 18 basis points in February, reaching 3.12 percent, the largest monthly increase since December 2021, according to research from Trepp, a commercial real estate data provider.

The all-time-high delinquency rate was recorded in July 2012, at 10.34 percent.

The last three years of delinquencies have been defined by the pandemic and its aftermath. June 2020 saw delinquencies soar. Since then, the largest monthly rise was that of December 2021 with an increase of 19 bps. The pace of delinquencies  fell in early 2022, stayed level through the middle of the year and rose only modestly in the final months. In year-over-year terms, the US CMBS delinquency rate is down 75bps from February 2022.

Trepp says there have been expectations since June 2022 that, in the light of Federal Reserve policy and recession fears, delinquencies were about to move sharply upwards. But for a period, rates defied such expectations, increasing only modestly in the second half of the year. That defiance ended last month.

Breaking the February statistics down by property class: the largest jump was in office delinquency rate (55bps, to 2.38 percent), followed by retail, which rose 17bps to 6.75 percent. Meanwhile, the industrial delinquency rate was unchanged at 0.40 percent and the lodging rate rose, but by only 1bps to 4.45 percent.

Blackstone’s default
Events last week demonstrated how even the biggest names in the real estate industry are susceptible to the challenges posed by loan maturities in the current market, reports affiliate title Real Estate Capital Europe.

On 2 March, loan servicer Mount Street transferred into special servicing a defaulted loan, which is securitised in the FROSN-2018 DAC commercial mortgage-backed securities issuance, and financed properties from Blackstone’s Sponda platform in Finland. It followed two weeks of talks between Blackstone and Mount Street after CMBS noteholders denied the borrower a one-year loan extension. The full story can be read here.

While the details of the two-week talks are confidential, Mount Street said in its announcement that “further proposals” from both sides had been explored. A Blackstone spokesperson expressed disappointment that Mount Street had not agreed to its proposal. A conclusion is yet to be reached.

More borrowers are expected to face difficulty repaying loans at maturity. In most cases, borrowers and lenders will negotiate outcomes directly. In this case, the fact the loan is in a CMBS put its fate into the hands of bondholders, and now a loan servicer. The situation shows not all refinancing issues will be straightforward to resolve.


Australia’s Metrics makes senior hire
Metrics Credit Partners, the Australian private debt fund manager and non-bank corporate lender, has appointed Kivanch Mehmet to the position of director – external relations, as the firm said investors’ interest in private debt continued to rise.

Mehmet has more than 20 years’ experience working in financial services, much of it dedicated to real estate investing across Europe, Asia and Australia.

Prior to joining Metrics, Mehmet was head of institutional capital at Australian fund manager Qualitas Group, managing its institutional business development. Before that, he was head of wholesale investor relations at Australian real estate specialist Charter Hall for nearly four years, where he was responsible for the group’s unlisted institutional real estate fund offerings.

New London partner for Akin Gump
Law firm Akin Gump has hired Paul Yin as a partner in the firm’s special situations and private credit team in its London office. Yin joins from White & Case, where he was a partner in its debt finance and private credit team.

Yin advises private credit funds and direct lenders, commercial and investment banks, investment funds, private equity sponsors and corporate borrowers on complex cross-border banking and finance transactions. He has experience in front-end lending transactions, rescue financings, restructurings, general corporate financings and real estate financings.

Yin will work closely with Fergus Wheeler on the credit platform in London, while supporting the global special situations and private credit team, led by Ranesh Ramanathan and Dan Fisher. He will also work closely with the firm’s global financial restructuring practice in connection with the financing of stressed and distressed credits and liquidity solutions, liability management exercises and restructurings.

CVC CLO defies ‘challenging’ conditions
Fund manager CVC Credit at the end of last week announced it had priced Cordatus XXV, a collateralised loan obligation fund totalling €400 million and arranged by Citibank. This was the second new CLO fund CVC Credit had priced globally this year and the first in Europe.

Cordatus XXV was oversubscribed and priced at the tight end of the market, amid what the firm described as “very challenging conditions”. The CLO is structured with a four-and-a-half year reinvestment period, with capital raised from both new and longstanding existing investors. As with previous Cordatus CLOs, this one is primarily comprised of broadly syndicated first lien senior secured loans.

Guillaume Tarneaud, partner and portfolio manager at CVC Credit, said: “We are thrilled to have priced our first European CLO of the year, which will increase our European CLO AUM to over €10 billion for the first time. While the market remains challenging, pricing a CLO in such an environment positions us well to acquire assets at attractive prices over the coming weeks.”

LP watch

Institution: Maryland State Retirement and Pension System
Headquarters: Baltimore, US
AUM: $62.92 billion
Allocation to private credit: 8.2%

Maryland State Retirement and Pension System has outlined its private credit pacing plan for 2023, according to materials from the system’s 21 February investment committee meeting.

Highlights included:

MSRPS aims to make private debt commitments amounting to $1.5 billion for full-year 2023, while exercising selectivity and flexibility in choosing funds.

The public pension will diversify its strategic allocation to gain exposure to more profitable sectors.

Maryland also seeks to improve its portfolio performance through co-investments. Maryland SRPS has a policy allocation of 8 percent towards private credit vehicles. The pension fund’s recent debt commitments include:

MSRPS’s private credit portfolio is managed by Hamilton Lane, while its overall pension performance is overseen by Meketa.

Platinum subscribers may click here for the investor’s full profile, including key contacts, allocation strategy and fund investments.

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