Direct lenders are taking an more and more pragmatic have a look at lending to non-sponsor owned firms, as competitors intensifies within the sponsor-backed market.
Christophe Rust, co-head of European credit score alternatives at funding supervisor NinetyOne, informed Different 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 somewhat, 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 select the fitting credit score. While there are various non-sponsored debtors that perhaps aren’t nice, equally, there are various which might be excellent.”
He admitted that mortgage origination within the non-sponsor house is significantly tougher. It entails 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 presently 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 Different Credit score Investor that he was making a concerted effort to draw extra non-sponsor enterprise as a degree of differentiation out there.
He agreed that the chance was typically ignored by asset managers that didn’t wish to, or have been unable to, originate loans within the non-sponsor house however disputed that personal equity-backed firms have been inherently much less dangerous.
In the meantime, Bridgepoint head of direct lending Andrew Cleland-Bogle stated that 95 per cent of his portfolio includes sponsor-backed firms.
Whereas Cleland-Bogle was in a position to spotlight two non-sponsor loans that made good 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 supplies 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 will not be essentially unsuitable for direct lending. “There’s some incredible threat/return on provide in that market,” he defined. “We’ve financed companies of that measurement, and we’ll do this the place they’re rising quick, and we are able to 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 can be crucial for credit score managers to distinguish their portfolio development and highlighted that sponsor-backed lending shouldn’t be seen as a assured solution 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 at all times works,” he stated.
Moody’s senior vice chairman Jeanine Arnold stated that threat couldn’t be calculated purely on the premise on whether or not an organization was sponsor or non-sponsor owned.
“Possession is necessary, however you can’t generalise on the finish of the day,” she stated. “Whenever you’re fascinated about threat on this new atmosphere of low progress, excessive charges for longer, contested valuations, it’s essential to take into consideration debt affordability, money movement, which is again to elementary credit score evaluation. And I’m fairly positive that’s what asset managers lenders shall be . It’s good, quaint credit score evaluation.”
