Direct lenders are taking an more and more pragmatic take a look at lending to non-sponsor owned corporations, as competitors intensifies within the sponsor-backed market.
Christophe Rust, co-head of European credit score alternatives at funding supervisor NinetyOne, informed Various Credit score Investor that the asset supervisor’s personal debt portfolio consists purely of non-sponsor owned companies.
Whereas many asset managers really feel that sponsor-backed lending is much less dangerous than non-sponsor, Rust stated that for companies with the experience and contacts required to originate the loans, non-sponsored presents a comparatively untapped alternative.
Learn extra: Debt funds dominate UK sponsor-backed offers in Q1
“We’re not allergic to lending to sponsored debtors,” he stated. “However quite, what we’re allergic to is partaking in aggressive processes the place we’re value takers and the place we’re takers in phrases.
“Our job is to choose the precise credit score. While there are numerous non-sponsored debtors that perhaps aren’t nice, equally, there are numerous which are excellent.”
He admitted that mortgage origination within the non-sponsor house is significantly harder. It includes constructing a community of execs who can refer debtors, after which having the time and experience to do thorough due diligence.
Rust estimates that of the roughly $1.7tn (£1.3tn) of belongings within the personal credit score markets, round 70 per cent is at the moment with sponsor-owned debtors.
Learn extra: Apollo exec forecasts rise in hybrid financial institution/personal credit score offers
One other personal credit score fund supervisor, with a roughly 80 per cent sponsor-backed portfolio, informed Various Credit score Investor that he was making a concerted effort to draw extra non-sponsor enterprise as some extent of differentiation available in the market.
He agreed that the chance was usually missed by asset managers that didn’t wish to, or had been unable to, originate loans within the non-sponsor house however disputed that non-public equity-backed corporations had been inherently much less dangerous.
In the meantime, Bridgepoint head of direct lending Andrew Cleland-Bogle stated that 95 per cent of his portfolio contains sponsor-backed corporations.
Whereas Cleland-Bogle was capable of spotlight two non-sponsor loans that made sensible returns, he stated that it was usually prohibitively onerous to supply and diligence non-sponsor companies. In distinction, Bridgepoint’s robust community of personal equity-backed companies gives a dependable pipeline of originations.
Learn extra: BlackRock sees alternative for personal credit score in asset-based financing
Nevertheless, Cleland-Bogle is evident that non-sponsor just isn’t basically unsuitable for direct lending. “There’s some unbelievable threat/return on provide in that market,” he defined. “Now we have financed companies of that measurement, and we’ll try this the place they’re rising quick, and we will see them on the cusp of graduating into the center market, however they’re not simply fairly there but.”
Blair Faulstich, senior managing director at different asset supervisor Profit Avenue Companions, stated that it will be important for credit score managers to distinguish their portfolio building and highlighted that sponsor-backed lending shouldn’t be seen as a assured method to mitigate threat.
“There’s an assumption with traders that sponsors will write incremental fairness checks when an organization is off plan, however that’s not the way it all the time works,” he stated.
Moody’s senior vice chairman Jeanine Arnold stated that threat couldn’t be calculated purely on the idea on whether or not an organization was sponsor or non-sponsor owned.
“Possession is vital, however you can’t generalise on the finish of the day,” she stated. “Once you’re fascinated about threat on this new setting of low progress, excessive charges for longer, contested valuations, that you must take into consideration debt affordability, money movement, which is again to basic credit score evaluation. And I’m fairly positive that’s what asset managers lenders can be . It’s good, quaint credit score evaluation.”
