PvB (CH) Asset-Backed Securities Fund. Exposure to Senior Secured Loans through CLOs

Transcription

1 PvB (CH) Asset-Backed Securities Fund Exposure to Senior Secured Loans through CLOs January

2 Current interest rate environment Significant implications for fixed income investors 35-year trend of declining bond yields could be nearing an end US has been in an unprecedented easing cycle since the Fed cut rates to 0% in December 2008 While Trump s victory introduced a variety of uncertain long-term variables into the market, it likely puts an end to easy monetary policy in the near term In addition to December s 25bp rate increase, the Fed indicated more to come in 2017 Investors need alternatives to long-only fixed rate bonds: Senior secured loans are one of them 2

3 Senior secured loans What is the difference to traditional high yield bonds? First lien secured loans are less risky than (high yield) bonds Interest rate sensitivity: coupon fix Holding Parent entity Operational entity 100% affiliate Traditional (High Yield) Bond Securitized loan Assets: stake in operational subsidiary Usually not pledged, few covenants Main risk: repayment at maturity (dividends are not paid if problems arise) Recovery prospects: lower than loans Low sensitivity to interest rates: floater Assets pledged Shares operating company Assets (machinery, licences, real estate etc.) Covenant package Main risk at beginning 3

4 Collateralized Loan Obligations (CLOs) Leveraged and diversified exposure to senior loans Broadly syndicated arbitrage cash flow CLOs Asset: Senior Secured Loans Liabilities CLO Senior & Mezz Debt CLO Equities: Shareholder s Stake A CLO is comparable to a finance company. Borrows money (Liabilities) Invests in Collateral (Loan Assets) Has residual value (Equity) CLO Equity: Represents an ownership stake and a first loss position; receives excess spread. Managed: The assets are typically managed by a seasoned asset manager with a strong track record managing leveraged loans saw the issuance of 235 deals across 106 US managers. Revolving Assets: During reinvestment period, managers can reinvest proceeds. Call/Amortization: The deal may be called by CLO equity note holders after the non-call period (~2-3 years), or amortize down after the reinvestment period ends (~4-5 years), which would see all the Notes redeemed at par by a set priority of payments. Source: Citi Research 4

5 CLOs: Investors decide on default level that affects them Pooled loans, tranched risk: different risk/reward profiles CLO classes Direct loan investors: receive avg. interest and are affected by all losses in the loan portfolio Source: Citi Research CLO investors: receive «leveraged» interest and choose subordination level (defaults born by lower tranches) 5

6 CLO portfolio covenants Covenants ensure quality of loan pool Source: Citi Research 6

7 CLO structures have evolved after the crisis Higher credit enhancement, shorter re-investment periods and more conservative portfolio construction Source: Citi Research 7

8 PvB (CH) Asset-Backed Securities Fund Summary Access to senior secured loan exposure through FINMA regulated mutual fund Floating rate structures, strict covenants and diversification rules applied to loan pool in each CLO CLOs allow to access loan pools with defined subordination pools defaults in loan pool start to affect investors only after certain threshhold is passed Experienced team of Alegra Capital decides for each loan pool / CLO which CLO class/subordination level offers most attractive risk/return profile Live track record since 2006, focus on non-investment grade CLO classes. Typically, the Fund holds CLOs Swiss mutual fund category «other funds» approved for public distribution also to non-qualified investors 8

9 Legal Disclaimer This material is presented solely for purposes of illustration and discussion. Under no circumstances is this presentation to be used or considered as an offer to sell, or solicitation of any offer to buy any security. The information contained herein is confidential and may not be reproduced or circulated in whole or in part. The information contained herein is in summary form for convenience of presentation, it is not complete and it should not be relied upon as such. All information, including performance information, contained herein was provided in good faith by PvB Pernet von Ballmoos AG. However, PvB Pernet von Ballmoos AG does not make any representation or warranty express or implied, as to the accuracy or completeness of the information contained herein and nothing herein shall be relied upon as a promise or representation as to past or future performance. This material may include information that is based, in part or in full, on hypothetical assumptions, models and/or other analysis (not all of which may be described herein) of Pernet von Ballmoos AG or any of its affiliates, no representation or warranty is made as to the reasonableness of such assumptions, models or analysis. The information set forth herein was gathered from various sources which PvB Pernet von Ballmoos AG believes, but does not guarantee, to be reliable. 9