Private Debt: An Alternative Asset Class Within Corporate Credit

Transcription

1 Managers of Corporate Credit Private Debt: An Alternative Asset Class Within Corporate Credit 3 rd September 2015 FOR PROFESSIONAL CLIENTS USE ONLY NOT FOR RETAIL USE OR DISTRIBUTION

2 Objectives Introduce Muzinich Introduce Direct Lending as a variable rate strategy within corporate credit Draw some comparisons with the syndicated leveraged loan market Compare performance with other alternatives Questions 1

3 Introduction to Muzinich Muzinich is an institutional asset management firm specializing in public and private corporate credit. Key Facts Founded 1988 Institutional Infrastructure 55 Investment & Risk professionals - 15 industry focused credit research analysts Ownership Asset Class Focus Independent Credit Oriented Strategies - 17 Private Debt investment professionals, o/w 14 in Europe 60+ Investor Relations, Finance & Accounting, Operations professionals Established network of 8 offices: Employees 116 Investment & Risk Professionals 55 Average Yrs of Exp. 16 New York Manchester London Paris Cologne Firm AUM (6/30/2015) $24.6 billion Milan Zurich Madrid *Employees and AUM as of June 30,

4 Muzinich European Private Debt Team We have a dedicated team of 14 local investment professionals across Europe and plans to grow to 20+ by year-end United Kingdom Rob Hill Team Leader Marc Shirman Philip O Leary James Adams Fund target m First closing Q Iberia Team of two investment professionals Fund target m First closing Q Madrid Manchester London Paris Milan Italy Team of four investment professionals Fund target m Second closing Q France Team of three investment professionals Fund target m First closing Q Pan-Europe One investment professional Fund target 500m First closing Q Employees as of July 31, The Investment Manager seeks to achieve the stated objectives. There can be no guarantee the objectives will be met. 3

5 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 FOR PROFESSIONAL CLIENTS USE ONLY - NOT FOR RETAIL CLIENTS OR ONWARD DISTRIBUTION European Private Debt Some opening comments: 1. Global financial crisis and Basel III 2. US precedent 3. A private market 4. A very local market Banks Loans to Corporates in the Euro area ( ) ( tr) Total <1 Yr >5 yrs Unprecedented levels of intervention 0.5 Source: ECB Our statistics - Banks balance sheet total loans to corporates 4

6 Introduction to Direct Lending Characteristic Direct Lending* (e.g. senior secured) Role Lead Arranger ability to structure the transaction, influence terms and pricing Indicative Return Typically 6%-10%, with variable rate upside Covenants Standard maintenance covenant package Tenor Medium term lending 4 year expected average asset life given refinancing Security Security over shares and assets Relationship with borrower companies Long-term partnership approach with management teams * Including Unitranche Note: Indicative returns estimated at asset level before manager s fees and losses 5

7 How do Private Debt funds source deals? Direct origination increasing transaction size Borrower Local Corporate Finance adviser Local debt adviser (e.g. Manchester, Paris) London debt adviser Indirect origination Primary Secondary Some considerations Deal selection Economics Banks Control Source: Muzinich illustrative analysis 6

8 Comparison to Syndicated Leveraged Loans Characteristic Direct Lending* Syndicated Leveraged Loans Role Lead Arranger Participant / limited ability to influence terms and pricing Indicative Return Typically 6%-10% Typical yield-to-maturity of 4%-6% Covenants Maintenance covenants Increasingly covenant-lite Tenor 4 year expected life Similar Security Security over shares and assets Similar Relationship with borrower companies Partnership approach Primarily with arranger. Limited access to management * Including Unitranche Note: Indicative returns estimated at asset level before manager s fees and losses 7

9 Covenants % of Newly Issued Syndicated Leveraged Loans which are Cov-Lite 46% 36% 21% 7% 9% 0% 0% 0% 0% Jan-Jul 15 Source: S&P European Leveraged Loan Review July

10 Leverage by Deal Size 7.0x 6.0x 5.0x 4.0x 3.0x 2.0x 1.0x 0.0x Jan-Jul 15 Deals of 200M of less Deals of 501M or more Source: S&P European Leveraged Loan Review July

11 Interest Rate Outlook 2.5% August 2015 Estimate from EUR Forward Curve Matrix 2.0% August 2015 Estimate from GBP Forward Curve Matrix 1.8% 2.0% 2.1% 1.5% 1.4% 3 month LIBOR / EURIBOR 1.0% 0.5% 0.6% 1.0% 0.2% 0.5% 0.8% 1.1% 0.0% 0.0% 0.0% -0.5% 3-month 1-year 2-year 3-year 4-year 5-year Source: Bloomberg August

12 Comparison to Other Alternative Asset Classes Risk / Return by Strategy ( Funds) Source: Preqin Global Private Debt Report 11

13 Why consider investing in Private Debt? Some considerations: 1. Contractual income adds to certainty 2. Covenants and Security downside protection 3. Floating rate product variable rate upside 4. Regular cash coupon interest and lending fees 5. Medium term lending 4 year expected average life 6. Low volatility not an exchange traded debt 12

14 Disclosures FOR PROFESSIONAL CLIENTS USE ONLY NOT FOR RETAIL USE OR DISTRIBUTION This document does not constitute an offering or form part of any offering or any solicitation of any offer to subscribe to or purchase any investment, nor shall it or the fact of its distribution form the basis of, or be relied upon in connection with any contract therefore. This document contains forward-looking statements, which give current expectations of future activities and future performance. Any or all forward-looking statements in this document may turn out to be incorrect. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Although the assumptions underlying the forward-looking statements contained herein are believed to be reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurances that the forward-looking statements included in this discussion material will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation that the objectives and plans discussed herein will be achieved. Further, no person undertakes any obligation to revise such forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. All reasonable care and attention has been given to the data provided, but no liability is accepted for any omissions or errors. Any research in this document has been procured and may have been acted on by Muzinich for its own purpose. The results of such research are being made available for information purposes and no assurances are made as to their accuracy. The Investment Manager, its affiliates, and its employees are not in the business of providing tax or legal advice to any taxpayer. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. Tax-related statements, if any, may have been written in connection with the promotion or marketing of the transaction(s) or matter(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer s particular circumstances from an independent tax advisor. The information provided in this document is highly confidential and is not to be reproduced or distributed to persons other than the recipient, without the express prior permission of Muzinich & Co. Ltd. Issued in Europe by Muzinich & Co. Ltd, which is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales No Registered address: 8 Hanover Street, London W1S 1YQ. 13