CVC.COM
=

News & Documents

Sign up to email alerts to get all the latest news and documents straight to your inbox

Sign Up

Market & Portfolio Commentary - September 2022

28.10.2022

September started on a soft tone after Fed Chairman Powell's speech in Jackson Hole at the end of August, where he re-affirmed his hawkish stance. The negative sentiment continued throughout the month as central banks globally hiked rates aggressively and forward-looking growth indicators pointed towards a material slowdown ahead. Inflation readings continue to be high, but we have seen material weakness in commodity prices such as oil. Even European gas prices are down around 50% from the August highs (source: Bloomberg), which, in combination with government price caps, should take some pressure off inflation going forward. Turbulence then picked up towards month end as the new UK government announced a new fiscal package that put considerable pressure on GBP and gilts.

Sub Investment Grade Highlights

New issuance in both the European leveraged loan market and high yield market continues to be at low levels given the overall uncertain macro outlook. Transactions are getting done however, but at materially wider levels than last year. Total September loan issuance amounted to €6.6bn (Year to Date (“YTD”) €44.2bn) while HY issuance continues to lag at €1bn for the month (YTD €17.5bn).

The Credit Suisse Western European Leveraged Loan Index return, hedged to Euro, was at -3.4% for the month. Defensives were -3.1% and cyclicals -3.7% in September. CCCs in September were down -7.6%, single Bs -3.7% and BBs -2.3%. As at the end of September, the 3-year discount margin on the index was 728bps. The Credit Suisse Western European High Yield Index, hedged to Euro, was down -4.2% (YTD -15.8%).

Portfolio Commentary

The European loan market initially held up reasonably well in the first few weeks of September but then we saw some capitulation during the last few days of the month. In particular, we saw considerable pressure on the CLO marks in the portfolio. On the back of the UK’s new fiscal policy and the consequent volatility in the gilts market, LDI pension schemes came under pressure and became forced sellers to cover margin calls. In particular, we saw considerable selling of CLO tranches, mainly some of the higher rated tranches. Due to the large supply, there was a material re-pricing wider of these tranches. Despite considerably lower trading volumes in the BB and B tranches, these re-priced wider on the back of the investment grade tranches repricing.

Trading activity picked up materially in September, after a seasonally slow August. We continued to add slowly to our CLO exposure by averaging into the market in this weakness. Furthermore, we participated in the DIP financing of a leisure chain, which came at SOFR+10%, with a 98 OID. We also rotated some lower conviction names into names that should perform better in the current macroeconomic climate, and at the same time reduced some second lien positions and unsecured positions to move up in the capital structure given the macro uncertainty ahead of us.

Across the entire portfolio, as of September month end, the weighted average market price was 84.2, trading at a YTM of 15.1% (€ hedged) / 17.5% (GBP hedged), and delivering a 9.2% (€ hedged) / 11.6% (GBP hedged) running cash yield. This compares to a weighted average price of 96.5 and YTM 8.3% and 7.9% as of December 2021. The increase in yield is due to a) increase in base rates both in EUR and GBP, b) the lower weighted average cash price on the portfolio due to market weakness and c) the attractive new issue spreads we see both in the primary loan and CLO markets. Floating rate instruments comprised 82.8% of the portfolio while 73.0% was invested in senior secured assets. The portfolio had a cash position of 6.2% (including leverage) at the end of the month. Market consensus is for further increases in base rates both in EUR and GBP, which should lead to a higher yield profile on the portfolio.

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.