Direct lenders are taking an more and more pragmatic take 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 Various Credit score Investor that the asset supervisor’s non-public 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 moderately, what we’re allergic to is partaking in aggressive processes the place we’re worth takers and the place we’re takers in phrases.
“Our job is to choose the correct credit score. While there are various non-sponsored debtors that possibly aren’t nice, equally, there are various which are very good.”
He admitted that mortgage origination within the non-sponsor area is significantly tougher. 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 property within the non-public credit score markets, round 70 per cent is at present with sponsor-owned debtors.
Learn extra: Apollo exec forecasts rise in hybrid financial institution/non-public credit score offers
One other non-public 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 a degree of differentiation available in the market.
He agreed that the chance was typically ignored by asset managers that didn’t need to, or have been unable to, originate loans within the non-sponsor area however disputed that non-public 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 capable of spotlight two non-sponsor loans that made good returns, he stated that it was typically prohibitively onerous to supply and diligence non-sponsor companies. In distinction, Bridgepoint’s sturdy 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 obvious that non-sponsor will not be essentially unsuitable for direct lending. “There’s some incredible threat/return on supply in that market,” he defined. “We’ve financed companies of that dimension, and we’ll try 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 various asset supervisor Profit Avenue Companions, stated that it will be important for credit score managers to distinguish their portfolio development and highlighted that sponsor-backed lending shouldn’t be seen as a assured strategy to mitigate threat.
“There’s an assumption with buyers 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 premise on whether or not an organization was sponsor or non-sponsor owned.
“Possession is necessary, however you can not generalise on the finish of the day,” she stated. “Whenever you’re eager about threat on this new surroundings of low progress, excessive charges for longer, contested valuations, it’s essential 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 will probably be taking a look at. It’s good, quaint credit score evaluation.”
