private debt: an alternative asset class within corporate...
TRANSCRIPT
Managers of Corporate Credit
3rd September 2015
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Private Debt: An Alternative Asset Class Within Corporate Credit
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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
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Introduction to Muzinich
Institutional Infrastructure
55 Investment & Risk professionals
- 15 industry focused credit research analysts
- 17 Private Debt investment professionals, o/w 14 in Europe
60+ Investor Relations, Finance & Accounting, Operations professionals
Established network of 8 offices:
London Cologne
Paris
Zurich
Milan
*Employees and AUM as of June 30, 2015
Key Facts
Founded 1988
Ownership Independent
Asset Class Focus Credit Oriented Strategies
Employees 116
Investment & Risk Professionals 55
Average Yrs of Exp. 16
Firm AUM (6/30/2015) $24.6 billion
New York
Madrid
Muzinich is an institutional asset management firm specializing in public and private corporate credit.
Manchester
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Muzinich European Private Debt Team
Iberia
Team of two investment professionals
Fund target €200-300m
First closing Q4 2014
France
Team of three investment
professionals
Fund target €150-200m
First closing Q2 2015
Italy
Team of four investment
professionals
Fund target €250-300m
Second closing Q1 2015
London
Paris
Milan
Madrid
Employees as of July 31, 2015. The Investment Manager seeks to achieve the stated objectives. There can be no guarantee the objectives will be met.
Pan-Europe
One investment professional
Fund target €500m
First closing Q1 2016
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 £200-300m
First closing Q3 2015 Manchester
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1. Global financial crisis and Basel III
2. US precedent
3. A private market
4. A very local market
5. Unprecedented levels of intervention
European Private Debt
Some opening comments:
0.5
1.5
2.5
3.5
4.5
5.5
Jan-0
3
Jan-0
4
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Total <1 Yr >5 yrs
Banks’ Loans to Corporates in the Euro area (2003 - 2015) (€tr)
Source: ECB Our statistics - Banks balance sheet – total loans to corporates
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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
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* Including Unitranche
Note: Indicative returns estimated at asset level before manager’s fees and losses
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How do Private Debt funds source deals?
Borrower Local Corporate
Finance adviser London debt
adviser
Local debt adviser
(e.g. Manchester, Paris)
Source: Muzinich illustrative analysis
increasing transaction size
Direct origination
Indirect origination
Banks
Primary
Secondary
Some considerations
• Deal selection
• Economics
• Control
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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
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* Including Unitranche
Note: Indicative returns estimated at asset level before manager’s fees and losses
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Covenants
7%
0% 0% 0% 0%
9%
21%
36%
46%
2007 2008 2009 2010 2011 2012 2013 2014 Jan-Jul 15
% of Newly Issued Syndicated Leveraged Loans which are Cov-Lite
Source: S&P European Leveraged Loan Review – July 2015
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Leverage by Deal Size
0.0x
1.0x
2.0x
3.0x
4.0x
5.0x
6.0x
7.0x
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Jan-Jul15
Deals of €200M of less Deals of €501M or more
Source: S&P European Leveraged Loan Review – July 2015
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Interest Rate Outlook
Source: Bloomberg August 2015
3 month
LIBOR /
EURIBOR
0.0%
0.0%
0.2%
0.5%
0.8%
1.1% 1.0%
1.4%
1.8%
2.0% 2.1%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3-month 1-year 2-year 3-year 4-year 5-year
August 2015 Estimate from EUR Forward Curve Matrix
August 2015 Estimate from GBP Forward Curve Matrix
0.6%
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Risk / Return by Strategy (2002 – 2012 Funds)
Source: Preqin Global Private Debt Report
Comparison to Other Alternative Asset Classes
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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
Why consider investing in Private Debt?
Some considerations:
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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
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Disclosures
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