Partners Group sees second lien opportunities in 2017

2017 is unlikely to ring in many changes compared with the second half of 2016, but US second lien loans are an attractive option.

The first half of 2017 shouldn’t see too much of a departure from 2016 as it pertains to the private lending space. That’s according to a recent white paper from Partners Group, its H1 2017 Private Markets Navigator report, noting the space should largely continue in the same vein as it did in 2016.

Despite this, one area to note is second lien debt in the US, an area the firm is viewing as attractive. The margin between first and second lien is growing, Christopher Bone, managing director, told PDI. It means second lien loans in the US now represent relative value, he added. The margin has grown from a ratio of approximately 1.8 to more than two, he said.

“The second lien market in the US is quite an attractive market to be in if you can access it,” Bone said. He added some banks are trying to re-enter the space providing second-lien loans, but this shouldn’t cause concern for private lenders who are able to offer potential borrowers more bespoke terms.

Partners Group is looking to lend to companies with attractive cash flows which can withstand an economic shock. “Those companies we consider to be strong that have recurring revenues,” Bone said.

In particular, sectors like pharmaceuticals, or companies providing services to these sectors represent attractive opportunities. Industries like this represent an attractive market to be in due to continued structural growth, Bone said.