They said it
“Covenant erosion over the past decade necessitates a paradigm shift in how lenders consider covenant terms”
Sabrina Fox, founder of Fox Legal Training, in her article, ‘Covenant Evolution Since the GFC: The Potential Implications of the Shift in Purpose from Lender Protections to Sponsor Flexibilities’.
First look
Tikehau platform offers €100,000 tickets
Paris-based fund manager Tikehau Capital is reaching out to a smaller-ticket, retail investor base through its digital platform, Opale Capital.
Opale announced it has selected tactical credit investment solutions from three managers – Tikehau itself as well as Morgan Stanley Investment Management and Brookfield Asset Management – through a fund of funds that will allow French investors to make commitments as low as €100,000.
Opale claimed the strategy “offers an approach suited to the current macro environment, investing in managers providing companies flexible financing to seize opportunities as traditional sources of liquidity dry up”.
Traditional sources of corporate financing – such as leveraged loans, high-yield bond issues and stock market listings – have all waned over the past two years. But companies under pressure from slowing growth and squeezed margins still need financing solutions.
The fund of funds is the first private debt investment strategy to be launched by Opale.
Arrow launches Dutch real estate platform
UK-based pan-European credit specialist Arrow Global has launched Mica Real Estate, a new real estate financing platform in the Netherlands.
The platform will be home to various investment strategies within the Dutch real estate market on behalf of Arrow funds and other third-party capital. Assets likely to feature in the portfolio include sustainable offices, life sciences, retail, residential and hospitality.
Amsterdam-based Mica will be led by Mark Debets, formerly of Hudson Advisors/Lone Star and Timo van den Noort, who was previously at Fortress Investment Group.
Arrow has made a number of recent acquisitions in the real estate sector: Maslow Capital, a provider of real estate finance; Eagle Street Partners, a real estate asset manager and developer; and Blue Current Capital, an ESG-focused real estate investor, developer and operator involved in the electrification of commercial fleets.
The launch of Mica also serves to expand Arrow’s presence in the Netherlands where it owns Vesting Finance, a provider of credit management and financial services; Focum, a data and risk management firm; and RNHB, a Dutch real estate specialist.
Zombie numbers increasing
The so-called “walking debt” are on the rise, as research from UK-based consultancy Kearney shows zombie companies around the world have grown by 5 percent between 2022 and 2023.
Kearney defines zombies as companies unable to meet their interest obligations with operating profits for three consecutive years.
The report notes that different sectors have been experiencing very different fortunes. In the aviation industry, a modest zombie rate of 3.2 percent in 2021 soared to 26.1 percent last year. By contrast, over the same period, the energy sector saw a 13 percent decline in zombies due to rising energy prices.
Kearney conducted stress tests based on a further 1.5 times increase in interest expenses – which increased the zombie rate by 15.6 percent – and a 2.0 times increase, which hiked the total by 21.5 percent.
Last year, according to Kearney, global economies allocated almost $1 trillion in capital to zombie companies, $790 billion in debt and $200 billion in equity.
The study found that the number of zombie companies going out of business is rising in a given year – from 7 percent of the zombie population in 2021 to 11 percent last year.
“Some sectors are proving more resilient, some are showing real strain,” says Alberto Fumo, partner and global lead, private equity, mergers and acquisitions and transformations at Kearney. “The important thing will be to regenerate their business models and adapt quickly, to reduce the effect of any actual further rate hikes before they come into force.”
A call to LPs
Our LP Perspectives 2024 Survey is now live, and we would greatly appreciate your participation as we seek to understand investor sentiment in the private markets today. Here’s the survey link.
Some pointers on this year’s survey:
LP Perspectives is PEI Group’s annual study of institutional investors’ approach to private markets asset classes over the coming year. The survey gathers insight on investors’ asset allocations, propensity to invest, performance predictions and views on the wider market.
The results will be published across all our titles.
Respondents will receive the results of the asset class of their choice as a thank you for completing the survey. PEI Group will also donate $5 to UNICEF for each completed response.
The survey takes no longer than 10 minutes to complete, and all submissions will remain anonymous.
The deadline for submissions is Friday 6 October.
Essentials
Defaults highest since 2009
S&P Global Ratings recorded 16 corporate defaults last month, the highest August tally since 2009 (see here, login required).
S&P says the monthly average number of defaults over a 10-year period is 9.8, but this rate is typically lower in the summer with the average August rate being 8.6.
Distressed exchanges – a type of out-of-court restructuring – accounted for 60 percent of last month’s total. “These types of default are continuing to appeal to distressed issuers that view out-of-court restructuring more favourably than other options like traditional bankruptcy,” says Nicole Serino of S&P Global Ratings Credit Market Research.
Most of the defaults were in the US or Europe, but S&P noted that Latin America has come under pressure – accounting for 13 of the 14 defaults seen in emerging markets so far this year.
The most troubled sector currently is media and entertainment, with defaults in 2023 so far six times higher than at the same point of 2022.
Adler to oversee alternatives at PGIM
PGIM, the investment management arm of Prudential Financial, has appointed Eric Adler as president and chief executive officer of PGIM Private Alternatives, which brings together private credit, real estate equity and debt, private equity, infrastructure and agriculture.
Adler was previously president and chief executive officer of PGIM Real Estate and chairman of private equity. “Eric is uniquely qualified to lead PGIM Private Alternatives, having grown PGIM Real Estate into one of the largest real estate investors globally, leading a team of more than 1,200 investment professionals overseeing $210 billion in assets,” said David Hunt, president and chief executive officer of PGIM.
PGIM Private Capital manages $98 billion in private credit and originated more than $16 billion of senior debt and junior capital to 241 mid-market companies and projects around the world in 2022, according to the firm.
Across all the strategies combining to form PGIM Private Alternatives, the firm has almost $311 billion under management. PGIM Real Estate covers real estate and agriculture, PGIM Private Capital private credit and infrastructure debt, and Montana Capital Partners private equity secondaries.
LP watch
Institution: Ohio Police & Fire Pension Fund
Headquarters: Columbus, US
AUM: $17.2 billion
Allocation to private debt: 3%
Ohio Police & Fire Pension Fund announced a $50 million commitment to Barings North American Private Loan Fund III during its August investment committee meeting.
The fund offers direct lending within the central US mid-market and primarily targets loans for private companies, many of which have private equity backing.
For 2023, OP&F’s private credit plan has set a target allocation of $235 million-$285 million. The Barings investment represents its first commitment of the year towards this goal.
Currently, OP&F’s private credit portfolio is valued at $531 million, accounting for 3 percent of its overall portfolio. The goal is to increase this allocation to reach a target of 3.5 percent.
Today’s letter was prepared by Andy Thomson, with John Bakie, Christopher Faille and Robin Blumenthal contributing
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