News & Documents

Investment Vehicle Manager Market & Portfolio Commentary - May 2021

28.06.2021

Equity markets showed higher volatility during May, in particular during the first half of the month. This was driven by concerns over inflation and potential tapering by central banks. The April CPI numbers in the US came out well ahead of expectations: the year-on-year print came out at 4.2%, ahead of every economists' estimate on Bloomberg, and the highest number since September 2008. In parallel PMI data published during the month supported a healthy economic momentum, opening the debate for potential tapering. This dynamic created volatility in the equity markets but also led to investors switching between fixed rate to floating rate debt instruments. For now, central bankers maintained their view that the high inflation data points we’re seeing are transitory in nature and hence they don’t see the need to change monetary policies in the near term.

European Sub Investment Grade Highlights

Total loan issuance during the month of May was €9.8bn, compared to €3.5bn in May 2020. The average new issue spread was E+378.9 (4.01% yield to maturity), which was broadly in line with last month at E+379.3 (3.97% YTM). The year-to-date ("YTD") issuance now stands at €63.32bn, considerably more than the €30.56bn issuance we saw in the first five months of 2020. On the High Yield side, we saw €9.2bn of bond issuance during the month, bringing YTD issuance to €60.18bn.a

The Credit Suisse Western European Leveraged Loan Index, hedged to Euro, was at 0.42% for the month, which brings YTD returns to +2.59%. Cyclicals (+0.52%) again outperformed defensives (+0.32%). CCCs returned +1.77% while BBs returned 0.21% during the month. As at the end of May, the 3-year discount margin on the index was 408bps. The Credit Suisse Western European High Yield Index, hedged to Euro, was up 0.30% for the month bringing YTD returns to +2.59%.
Within the performing book, the month of May was characterised by robust primary market activity, which resulted in the addition of new names to the book as well as the refinancing of certain existing positions. During the month, across the portfolio, five individual performing names launched and completed successful refinancing transactions. We participated in the new issue component of a number of these deals. However, in some instances we were inclined to accept prepayments, which was generally a function of tight pricing on the new debt. We re-deployed this capital into more attractively priced opportunities. In addition to refinancing transactions, we saw three existing names tap the primary market for incremental financing. Lastly, we added three new names to the performing book in both primary and secondary markets, expanding the funds diversification across accretive opportunities. Our primary market participation was funded partly by paydowns that have either occurred or will occur in the near term, as well as through the right-sizing of certain existing positions at attractive levels. As of May close, performing credit (including cash) was 43.4% of the portfolio, trading at a weighted average price of 100.0 and a YTM of 4.3%, whilst delivering a 4.3% cash yield to the portfolio.

The credit opportunities book continues to be a diligent focus of the team, from screening new opportunities to adding new names and managing existing risk. During the month, we added one new name to the book in the unsecured debt of a US-based physician staffing provider. Additionally, we sourced risk in two existing positions; in one instance, we topped up at a discount, while adding risk in the second name ahead of an earnings report. Both names were introduced to the book as new names earlier this year. Away from trading activity, we saw several existing discounted positions experience significant price appreciation throughout the month. This was driven by buying activity in the secondary market, as well as operational outperformance at each of these high-conviction portfolio companies. Within the structured finance book, we participated in the add-on of an existing equity position upon a deal reset, offering attractive risk-adjusted returns at a discount. As of May close, credit opportunities was 56.6% of the portfolio, trading at a weighted average price of 93.2 and a YTM of 8.6%, whilst delivering a 7.3% cash yield to the portfolio.

Across the entire portfolio, as of May month end, the weighted average market price was 96.1, trading at a YTM of 8.4%, and delivering 8.0% cash yield (on a levered basis) versus a weighted average price of 93.6, YTM of 7.0% and cash yield of 6.6% as of December 2020. Floating rate instruments comprised 79.0% of the portfolio. Senior Secured 81.2%. The portfolio had a cash position of -1.3% (including leverage) with leverage at 1.3x assets.

The fund continues to be well-positioned heading into the summer months. Across both performing and credit opportunities books, Q1 2021 performance at our portfolio companies continued to show operational strength as economic recovery persists. We remain focused on rising input prices and our portfolio companies’ pricing power across all applicable industries. The fund continues to significantly outperform relevant benchmarks, and we feel confident in our positioning for both current income and capital appreciation heading into the end of Q2 2021.

a Source: LCD, an offering of S&P Global Market Intelligence - June 2021

Important disclaimer and terms of use

These written materials are not for release, publication or distribution, directly or indirectly, in or into the United States, Australia, Canada, South Africa or Japan or to "U.S. persons" as defined in Regulation S under the US Securities Act ("US Persons"). The information contained herein does not constitute or form part of any offer or solicitation to purchase or subscribe for securities in the United States, Australia, Canada, South Africa or Japan or any other jurisdiction where to do so might constitute a violation of the relevant laws or regulations of such jurisdiction. The Company has not been and will not be registered under the US Investment Company Act of 1940, as amended (the "Investment Company Act") and, as such, holders of the Company’s securities will not be entitled to the benefits of the Investment Company Act. The securities discussed herein have not been and will not be registered under the US Securities Act of 1933, as amended (the "US Securities Act"), or with any securities regulatory authority of any state or other jurisdiction of the United States and may not be offered or sold in the United States or to, or for the account or benefit of, US Persons absent registration or an exemption from registration under the US Securities Act in a manner that would not require the Company to register under the Investment Company Act. No public offering of securities will be made in the United States. No securities may be offered or sold, directly or indirectly, into the United States or to US Persons absent registration or an exemption from registration under the US Securities Act and in a manner that would not require the Company to register under the Investment Company Act.

In addition, in the United Kingdom, these materials on this website are only being distributed to and are only directed at (i) persons who are outside the United Kingdom or (ii) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order") or (iii) high net worth entities, and other persons to whom they may lawfully be communicated, falling within Article 49(2)(a) to (e) of the Order (all such persons in (i), (ii) and (iii) above together being referred to as "relevant persons"). Securities to which the materials relate are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such securities will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on the materials or any of their contents.

Any communication on this website is only addressed to and is only directed at persons in any member state of the European Economic Area ("EEA Member State") where any required notification or registration for "marketing" as that term is defined in Article 4(1)(x) of Directive 2011/61/EU on alternative investment fund managers ("AIFMD") has been made and who are both:

  1. "qualified investors" in that Member State within the meaning of Article 2(e) of EU Prospectus Regulation (EU/2017/1129), as amended, including any relevant implementing measure in EEA Member State which has implemented the EU Prospectus Regulation; and
  2. "professional investors" in that EEA Member State within the meaning of Article 4(1)(ag) AIFMD.

A list of EEA Member States in which a notification or registration has been made for marketing to professional investors under AIFMD is available on request.

This website should not be accessed by persons in any EEA Member State who are "retail investors" within the meaning of Article 4(1)(aj) of the AIFMD ("retail investors").

Access to electronic versions of these materials is being made available on the webpage in good faith and for information purposes only. Making press announcements and other documents relating to any offering of securities available in electronic format does not constitute an offer to sell or the solicitation of an offer to buy or subscribe for securities, nor does it constitute a recommendation by any party to sell or buy securities.

By clicking on the "Accept" button, I confirm, represent, warrant and agree that:

I am not a US Person or located in the United States, Australia, Canada, South Africa or Japan or any other jurisdiction where to proceed to view the materials on this webpage would constitute a breach of securities law in that jurisdiction, and I confirm that I am permitted to view electronic versions of these materials; I will not forward, transmit or show the materials contained in this webpage to any US Person or person located in, or a resident of, the United States, Australia, Canada, South Africa or Japan or any other jurisdiction where it would be unlawful to do so; and I have read and understood the disclaimer set out above and will read carefully any additional disclaimers or important notices attaching to or forming part of the materials or information on this website. I understand that this may affect my rights, and I agree to be bound by their terms.

I am not a retail investor located in an EEA Member state.