Loan Note: US loan market on the rebound; Bain, SKW team up for second time

There's been a strong bounce back in the US loan market. Plus: Bain and SKW sign up for a repeat performance and Germany overtakes France in mid-market lending. Here's today's brief for our valued subscribers only.

They said it

“Powerful secular trends are creating a new wave of e-commerce consumer packaged goods companies that require institutional, structured capital solutions to scale.”

Bret Leas, senior partner and global head of structured corporate credit and ABS at Apollo Global Management, on the rationale for the firm’s strategic partnership with Victory Park Capital. See more on this here.

First look

US loan market in fine fettle
Since taking a hammering from the pandemic in the first half of last year, the loan market in the US has bounced back in remarkable fashion according to a range of data points from financial software and risk solutions firm Refinitiv.

The data shows the number of leveraged buyout loans worth $1 billion or more soaring to 33 so far this year, compared with 32 for the whole year in both 2019 and 2020. Primary issuance in the leveraged loan market up to 3 June was 57 percent above the level a year ago and 86 percent more than two years ago.

In addition, there has been only $4.6 billion of defaulted institutional loan volume so far in 2021, down 87 percent on a year-on-year basis, while the issuance of US collateralised loan obligations is tipped for a record year.

There are also signs that the US loan market may be doing its best to shrug off accusations from European investors that it’s not on top of environmental, social and governance issues. Green and ESG-related loan activity has leapt 4.5 times year-on-year so far in 2021.

For more data and charts, see a Refinitiv presentation here.

Bain and SKW back for encore
One feature of private credit in 2021 has been the strategic partnership, and last week saw another announced in the form of Bain Capital Credit and SKW Funding, a private lending and distressed credit platform. There’s a difference though – this is the second joint venture arrangement agreed by the two firms.

The latest agreement will target $1.3 billion of special situation acquisition and loan originations over the next few years. The first acquisition to arise from it was a $42 million note purchase secured by an office building portfolio in Austin, Texas; while the two firms have also provided mezzanine debt finance as part of a $410 million loan origination secured by an office building at 111 Wall Street, New York.

The first joint venture between the two firms, which was formed in July 2019, resulted in the origination of nine deals. More details of the tie-up can be found here.

Data snapshot

The rise of Germany. Private debt has rebounded strongly in Germany following the covid-19 pandemic, putting it ahead of France, which has historically been Europe’s second largest market. While the UK continues to lead, Germany has occupied second or joint second place since Q2 2020 and saw more deals than France in both Q3 2020 and Q1 2021. While Germany was relatively slow to adopt private debt, it appears to be recovering more strongly from the pandemic than other markets and could maintain a lead over France in the future.


Vital makes two impact loans
Vital Capital, an impact investor that has been backing companies in sub-Saharan Africa for more than a decade, has approved two new loans from its Vital Impact Relief Facility, which was launched last year to help fundamentally sound African businesses navigate short-term challenges.

The two loans were made to Sollatek, a manufacturer of solar and voltage control products, and Kenya-based Privamnuts, a macadamia nut processor and exporter involved in the modernisation of the macadamia industry in Kenya. Both companies are seeking to bring about positive economic and social impact to the communities in which they operate.

Second Europe CLO for Bridgepoint
Bridgepoint Credit, the credit arm of PEI Media owner Bridgepoint, has priced its second European collateralised loan obligation, the €355 million Bridgepoint CLO 2 DAC. The CLO commits to responsible investing, containing specific ESG eligibility criteria as well as an enhanced level of reporting transparency with respect to the ESG profile of the portfolio. Arranged by Credit Suisse, Bridgepoint CLO 2 is expected to close on 28 June 2021.

ThinCats teams with Wafra
ThinCats, an alternative finance provider to mid-sized SMEs, announced a strategic investment in the company from New York-based Wafra Capital Partners of £160 million ($222 million; €186 million). WCP partnered with speciality finance firm Quilam Capital on the transaction.

Having lent almost £1 billion to UK SMEs over the past few years, the investment from WCP, alongside senior bank and institutional funding, enables ThinCats to lend a further £2 billion. Following its investment, WCP will become a significant minority shareholder in ThinCats. Read more on this here.

LP watch

Institution: Los Angeles County Employees’ Retirement Association
Headquarters: Pasadena, US
AUM: $69.59 billion
Allocation to alternatives: 25.7%

Los Angeles County Employees’ Retirement Association agreed to increase its illiquid credit target allocation from 3 percent to 7 percent at its May 2021 investment board meeting, a contact at the pension confirmed to Private Debt Investor.

The US public pension also plans to add illiquid credit to its emerging manager programme by the end of 2022, as previously reported by Private Debt Investor.

LACERA currently allocates 2.6 percent of its full investment portfolio to illiquid credit, which includes private debt. The pension’s chief investment officer is Jonathan Grabel.

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

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