Analysis of private debt markets suggests that with certain sectors of borrowers struggling with cash flows, lenders will have to be flexible and rely on well-written covenants. Meanwhile, actuaries are looking to help fight the global pandemic.
Actuaries called on to help pandemic effort
The Institute and Faculty of Actuaries has launched a Covid-19 response group to help support government agencies and other bodies in their response to the global coronavirus pandemic. The group has highlighted actuaries’ modelling skills as being potentially useful in supporting service provision experts with logistics, aiding government agencies with their finances, and volunteering with the Royal Statistical Society. Practitioners who can spare 25 per cent of their time are urged to contact the group.
Pandemic fallout to test private debt covenants
A global recession is likely to dry up deal flow in private debt, despite record stimulus packages from governments and a return to ultra-loose monetary policy, according to Aviva Investors. Real estate debt and private debt will be worst affected by companies in the leisure, hotel, travel, auto and retail sectors struggling to adapt to disrupted cash flows. Infrastructure debt, meanwhile, could benefit from governments investing in their recovery following the crisis, although the crashing oil price could affect projects that are dependent on energy prices. With private market pricing lagging the widening of spreads in public fixed income, the illiquidity premium has also been eroded, and lenders will need “to be flexible in helping businesses in their recovery”.
Big banks left hanging after ‘disaster’ in risky loan market
Banks involved in the warehousing of risky loans for structured products are exposed to a “disaster” as underlying assets are subjected to a coronavirus discount. Reforms to structured finance markets mean asset managers, owners and banks involved in collateralised loan obligations are lending to less risky companies than before the last financial crisis, according to the Financial Times. But demand drying up, and companies representing around 10 per cent of CLO assets either being downgraded or put on notice for a downgrade, leaves bank balance sheets exposed. Meanwhile, asset owners and managers could be forced to inject further capital to vehicles, as leveraged loans also slumped to a discount of 20 cents on the dollar.
