Loan Note: Say hello to our new fund performance data; defaults edged up in Q4 2022

A new fund performance offering from our database – make sure you check it out; Proskauer sees defaults rising but not (yet) at scary levels; and SKY Leasing raises a new aircraft fund. Here's today's brief for our valued subscribers only. 

They said it

“We think about private credit as a huge area of opportunity, because investors… are realising now that they can lend directly to borrowers with help from someone like Blackstone”

Jon Gray, Blackstone’s president and COO in conversation with affiliate title Private Equity International (see here, registration required).

First look

Fund performance at your fingertips: another vital new offering from our database (Source: Getty)

Our new performance data
At a time when resource-constrained LPs are thinking carefully about which GPs to re-up with, a firm’s track record becomes more important than ever before. Just as well, then, that Private Debt Investor has this week launched a fund performance data offering.

Fund profiles on our database now disclose how much of a fund’s capital has been called and how it has performed in terms of TVPI, RVPI, DPI and IRR. The data covers 84 of the largest 100 funds closed between 2008-20, and funds that comprise 50 percent of all capital raised over that period. Try it out for yourself on our database.

Default rates rising but nowhere near previous peak
The private credit default rate has moved up but from historically low levels – with the rate now more or less in line with the long-term historical average.

Law firm Proskauer’s Private Credit Default Index for the fourth quarter of last year found the rate moving up to 2.06 percent from the previous quarter’s 1.56 percent. It represented the second straight quarter in which the rate has increased.

The upturn in the last couple of quarters is in contrast to the fairly rapid decline in the default rate following the peak of 8.1 percent that was reached amid covid outbreaks in the second quarter of 2020.

The fourth quarter saw the default rate go up for companies at the larger and smaller end of the scale, but decline for those in the middle. Companies with more than $50 million of EBITDA at the origination of the loan saw their default rate go up from 1.1 to 1.5 percent between the third and fourth quarters, while those with less than $25 million of EBITDA saw the rate climb from 1.5 to 2.7 percent. But those between $25 million and $49.9 million saw the rate come down from 2.1 to 1.7 percent.

In terms of sector trends, healthcare/life sciences and food/beverage both recovered from a sharp rise in the rate between the second and third quarters. The former saw the rate decline slightly in the fourth quarter while the latter saw it remain the same. But manufacturing/consumer goods and services/retail saw significant increases – from 0.8 to 2.5 percent for the former, and from 3.5 to 4.6 percent for the latter.

Our February issue content is now available
We find limited partners seeking to identify niche areas of the private debt universe as they plan their allocation priorities for 2023; we discover the financing gap that presents opportunity for real estate debt lenders; All Seas Capital, led by two former KKR executives, explain why they feel Europe’s SMEs are under-served; and much more besides. Click here to access the February 2023 issue of Private Debt Investor.


SKY Leasing fund more than doubles size of predecessor
San Francisco-based SKY Leasing said it held a final close on its SKY Fund V, with approximately $770 million, more than double its predecessor and ahead of its target.

The fund received support from new and existing investors, including global insurance companies, sovereigns, pension funds, endowments, foundations and family offices.

SKY V is a continuation of the aircraft leasing manager’s programme focused on providing capital solutions to airlines seeking fleet modernisation, primarily through the sale-leaseback of new aircraft deliveries.

“The capital raised for SFV is well positioned for the post-covid recovery period, which continues to present attractive investment opportunities for new and young mid-life aircraft,” said Austin Wiley, chief executive officer of SKY Leasing.

The company, with offices in San Francisco, Dublin and Singapore, was founded in 2019 in partnership with M&G Investments. Since 2016, SKY Leasing has invested more than $7 billion to acquire new and young mid-life aircraft.

A €51bn refinancing problem
Fund manager AEW has estimated that the real estate debt refinancing gap is far larger than originally estimated at a sobering €51 billion, as reported by our colleagues on Real Estate Capital Europe.

In its latest research, the manager factored in faster-than-anticipated collateral value declines and significantly expanded the analysis by factoring in the impact of falling interest coverage ratios on lenders’ appetites to refinance.

“Lenders and borrowers will have to be creative to restructure the capital stack to reach sustainable LTV and ICR levels,” said Hans Vrensen, head of research and strategy at AEW. Read more about the research here.

Family offices cautious of UK
Many family offices are concerned about the risks of investing in the UK, new research from Aeon Investments, the London based credit-focused investment company shows.

Its study of family offices in the UK, US, Switzerland, Germany and the Nordic regions, which collectively have around $98.4 billion in assets under management, found just over one in 10 (11 percent) rate the UK as very unattractive while 20 percent say it is quite unattractive. However, two-thirds (66 percent) say the UK is attractive for investment currently.

Four out of 10 family offices say the UK’s risk profile compared with other potential investments is either too risky or slightly too risky with 43 percent rating the UK’s risk profile as average and 17 percent saying its risk profile is low.

Key risks identified by the research include concerns around sterling, inflation and the relative value of UK assets.

LP watch

Institution: CPP Investments
Headquarters: Toronto, Canada
AUM: C$529 billion
Allocation to private debt: 14%

CPP Investments acted as lead investor for Harbor Group International’s latest multifamily credit offering, according to a press release from the Norfolk-based real estate investment management firm.

The $1.6 billion final closing for the HGI Multifamily Credit Fund is marked by a commitment of $585 million from CPP Investments, continuing a tenured relationship that has seen the Canadian pension back three HGI investment vehicles since 2019.

In 2020, CPP Investments was lead investor in HGI’s multifamily whole loan platform, committing $110 million. In 2019, CPP Investments committed $180 million to HGI’s Freddie Mac Supplemental Loan programme.

The fund seeks to achieve attractive risk-adjusted returns by investing in US multifamily credit opportunities including senior mortgage loans, Freddie Mac K-series bonds, preferred equity and mezzanine debt investments and investments in securitised multifamily mortgage products.

CPP Investments currently allocates 14 percent of its total investment portfolio to private debt, comprising around C$74.1 billion ($55.5 billion; €51 billion) in capital. The pension’s target allocation to the asset class is unknown.

The C$529 billion pension’s recent fund commitments have tended to be made to Asia-Pacific focused vehicles that utilise a senior debt strategy.

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