Private Debt: An Alternative Asset Class Within Corporate Creditfiles7.webydo.com/90/9022429/UploadedFiles/171C563F-5392... · 2015. 9. 17. · • Draw some comparisons with the

Managers of Corporate Credit

3rd September 2015

FOR PROFESSIONAL CLIENTS USE ONLY – NOT FOR RETAIL USE OR DISTRIBUTION

Private Debt: An Alternative Asset Class Within Corporate Credit

1 Muzinich & Co Private and confidential

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

FOR PROFESSIONAL CLIENTS USE ONLY - NOT FOR RETAIL CLIENTS OR ONWARD DISTRIBUTION


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


http://www.google.co.uk/url?sa=i&rct=j&q=european+map&source=images&cd=&cad=rja&docid=JK5o6VOjqLe2UM&tbnid=Ve2AOwPUAjTVNM:&ved=0CAUQjRw&url=http://blank-map-of-europe.blogspot.com/2011_01_01_archive.html&ei=FATtUeu9Kuah0QWp8IGIDg&bvm=bv.49478099,d.ZGU&psig=AFQjCNEURAE3myMI_FqYOtHTAS9LlX0DVg&ust=1374573897225736


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



Italy

Team of four investment

professionals


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


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


http://www.google.co.uk/url?sa=i&rct=j&q=european+map&source=images&cd=&cad=rja&docid=JK5o6VOjqLe2UM&tbnid=Ve2AOwPUAjTVNM:&ved=0CAUQjRw&url=http://blank-map-of-europe.blogspot.com/2011_01_01_archive.html&ei=FATtUeu9Kuah0QWp8IGIDg&bvm=bv.49478099,d.ZGU&psig=AFQjCNEURAE3myMI_FqYOtHTAS9LlX0DVg&ust=1374573897225736


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



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


* Including Unitranche

Note: Indicative returns estimated at asset level before manager’s fees and losses


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


http://www.google.co.uk/url?sa=i&source=images&cd=&cad=rja&uact=8&docid=eYyOvSn7mcVGDM&tbnid=Gs7nxYgXCEt8VM:&ved=0CAgQjRw&url=http://www.clker.com/clipart-348076.html&ei=1bUYU8DaFI220AGL94H4Ag&psig=AFQjCNEHin-GjgNnRV7m0FagE2J5RVloEQ&ust=1394214741497215


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


* Including Unitranche

Note: Indicative returns estimated at asset level before manager’s fees and losses


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



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



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%



Risk / Return by Strategy (2002 – 2012 Funds)

Source: Preqin Global Private Debt Report

Comparison to Other Alternative Asset Classes



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:



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

events.

All reasonable care and attention has been given to the data provided, but no liability is accepted for any omissions or errors. Any research in this document has been procured

and may have been acted on by Muzinich for its own purpose. The results of such research are being made available for information purposes and no assurances are made as to

their accuracy.

The Investment Manager, its affiliates, and its employees are not in the business of providing tax or legal advice to any taxpayer. These materials and any tax-related

statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. Tax-related statements, if

any, may have been written in connection with the “promotion or marketing” of the transaction(s) or matter(s) addressed by these materials, to the extent allowed by

applicable law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

The information provided in this document is highly confidential and is not to be reproduced or distributed to persons other than the recipient, without the express prior

permission of Muzinich & Co. Ltd.

Issued in Europe by Muzinich & Co. Ltd, which is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales No. 3852444. Registered address:

8 Hanover Street, London W1S 1YQ.

Disclosures


Documents

Private Debt: An Alternative Asset Class Within Corporate Creditfiles7.webydo.com/90/9022429/UploadedFiles/171C563F-5392... · 2015. 9. 17. · • Draw some comparisons with the