The events of the past year have demonstrated the value to credit investors of a strong, independent trade body to engage with the market, enable its participants to interact with one other and to pursue key initiatives. Against this backdrop, the European Leveraged Finance Association has a busy year planned ahead.

Sabrina Fox

Continued focus on ESG

Our ESG disclosure initiative included publication of the first sector-focused ESG factsheets, developed with the Principles for Responsible Investment. These were developed with input from companies in the debt collectors, paper and packaging, and telecoms sectors, and sector-specialist credit analysts from investment firms and rating agencies.

We co-hosted with the PRI a second ESG workshop in January 2021, incorporating five more sectors: chemicals, industrials, retail/consumer, technology/software and communications infrastructure. Using feedback from participants, our ESG committee will produce factsheets for these sectors over the coming months. Our vision is for ESG information to be summarised in the prospectus or information memorandum so investors can engage on these issues with companies during the marketing stage for a new bond or loan. The advantages are described in our Guide for Company Advisers to ESG Disclosure in Leveraged Finance Transactions, co-published with the Loan Market Association and thereby reducing reliance on individual investor questionnaires.

New private debt committee

Our board voted in December to create a private debt committee to serve as a forum for direct lenders within ELFA. ESG is top of mind across asset classes. The committee will look at how the resources we have developed can be usefully deployed in the private debt market.

We will explore how to streamline direct lenders’ approach so that ESG matters can become a core feature of the due diligence process. We envisage prioritising engagement with companies, private equity sponsors and debt advisory firms as a key first step in the process.

The committee will explore ways to support transparency in valuation matters and look to provide best practice guidance on valuation considerations. It will also provide a forum for investors to discuss their approach to the LIBOR transition and get borrowers’ feedback on their work in this area.

Covenant transparency

We will also continue work on our covenant transparency initiative, launched last summer with a survey to investors on covenant disclosure and calculations. Two-thirds of respondents reported being unable to accurately calculate covenant capacity using the information currently provided by borrowers. This supported our view that, as covenant provisions become more complex, disclosure should also evolve to preserve investor confidence in these instruments.We also provide educational resources on covenants, including tearsheets that provide key covenant information to high-yield bond investors on the day of deal launch.

Our seminars provide information on the implications of some of these documentary flexibilities based on case studies on when they were used, in addition to highlighting regulatory and legal developments and how they might impact investors.

Looking beyond 2021

ELFA was born out of investors’ wish to fulfil their fiduciary duty to clients – the people planning for retirement or saving for their children’s education – while providing capital to businesses. We move into our third year as the established voice of Europe’s leveraged finance investor community, with a strong foundation to continue our work supporting our members in carrying out their roles and creating a stronger, more resilient leveraged finance market.

Sabrina Fox is chief executive of the European Leveraged Finance Association