Against a backdrop of excess demand, deal documentation has weakened to unprecedented level (notwithstanding some well published investor push back on a couple of perceived weaker credits).
The prevalence of Cov Lite deals in the European market is well documented. Indeed our 2016 Loan Market Update showed that the tipping point was reached in H2 with the majority of deals now being completed with only a springing covenant. You can read more about this in our 2016 Loan Market Update. https://bonds.debtxplained.com/carpo/research/articles/34/european-leveraged-loan-market-update-2016/?.
Our Q2 2017 Loan Market Report is due out shortly and will document all of the latest developments in the European loan market. You can sign up to receive your copy here www.debtexplained.com/sign-up
The loan market is famously private – although the “privacy” lines are increasingly blurred as PE sponsors seek more standard terms based on what has passed the market irrelevant of deal size – and this has long provided market practitioners with challenges. How to track the developments under different laws, the prevalence of individual terms and whether there is an exact precedent in the market?
Don’t get me wrong – there is plenty of information on offer. Law firms, advisors and consultants are falling over themselves to showcase their expertise and provide information on the leveraged loan market. Indeed I have personally worked with some incredibly talented, diligent and conscientious individuals and teams in this market who are doing exactly that.
The key here is the granularity of the information that can be produced. Having worked as an advisor to both the buy and sell side during my career, I know – and fully understand – that the devil is in the detail. I set up Debt Explained in 2010 with the express purpose of providing data – as well as analysis – on the leveraged finance market.
At Debt Explained our senior legal team has worked incredibly hard to highlight the ever aggressive weakening of loan document terms including in relation to incremental terms, the ever increasing availability of permitted alternative debt, further limited condition acquisition flexibility; the return of portability; and a downgrading of the concept of free transferability during an Event of Default - to mention just a few of the many issues.
At Debt Explained we store all this information in a master database rather than a series of reports. The ability to analyse subtle shifts in these areas ensures that our team and our clients have complete information at their fingertips. We are now making this data available for clients via our latest product – Loan Portfolio Manager (LPM).
LPM is another unique offering which ensures that users not only have granular information but can view it in a form tailored completely to their own portfolio. Compare over 230 data points from every deal from a single sponsor in your portfolio and see how they rank against the latest deal on offer from that sponsor - or compare across different sectors, deal sizes, governing laws or whatever citeria you choose to select. Consider your health care deals excess cash flow and prepayment provisions side by side. The user can choose the deals by name or any criteria and vary requirements as desired. Get information on portfolio of deal terms for your investors, whatever they may ask.
It is an oft-used phrase that in the land of the blind, the one-eyed man is king. I would like to think that Debt Explained has just handed anyone with responsibility for a loan portfolio a microscope. Or to use another phrase - knowledge is power (and leads to better returns and lower losses!).
For me personally this is the latest step on a long journey to bring transparency to the market. Having spent a lot of time meeting with buyside clients and prospects to understand their challenges and frustrations, I am excited to see the product become reality. We are all very grateful to the input that has been provided along the way and we look forward to continuing to work with you.
-- Stephen Mostyn-Williams, Chairman of Debt Explained
Stephen founded Debt Explained in 2007, following a 25 year career in leveraged finance. He has held senior positions at Cadwalader, Wickersham & Taft LLP; Shearman & Sterling LLP and Ashurst. Stephen co-founded the European High Yield Association and served as its chair for the first three years of its existence.
If you would like any information regarding Loan Portfolio Manager or any of our other products, please contact us.
The information contained (whether transmitted by way of email, report, electronic media or paper or similar means) in this communication ("Information") is subject to the terms and conditions as set out on the Debt Explained website (www.debtexplained.com). Please visit the website if you are not aware of them. For the avoidance of doubt neither Debt Explained Limited, its employees, officers or contractors owe any duty or are liable to you in any manner in relation to the Information which you should verify for yourself. The Information does not constitute legal or investment advice or advice or recommendation of any kind.