.jpg)
5 hours ago
4
Article content
More pressure may be ahead, according to strategists at Goldman Sachs Group Inc., who estimated last month that profits are likely even worse than widely thought. Crunching the CLO data deal-by-deal rather than in aggregate, which they argue is less precise, shows a slimmer arbitrage than traditional metrics suggest.
Article content
One factor pushing profits lower are money managers who raise special funds known as captive equity. These are pools of capital they control that can buy any and all CLO equity that their own firm might sell. This positions them to quickly take advantage of sudden downdrafts like the one that hit software loans this year, but there’s concern in some quarters about weakened discipline, since there are no external equity buyers pressuring CLO managers to scrutinize loan documents.
Article content
Board Battle
Article content
In May, the drama at a publicly listed fund called XFLT began unfolding.
Article content
XFLT is overseen by Chicago-based XA Investments. The fund’s board voted to oust its day-to-day manager, Octagon Credit Investors, and bring in a new manager, an affiliate of King Street called Rockford Tower. The board pointed to the fund’s steep decline in net asset value over the last two years.
Article content
Article content
But the fund’s shareholders are required to approve efforts to appoint Rockford Tower, and as a July 30 vote approaches, the clash has escalated.
Article content
Octagon, which has argued that it actually outperformed CLO fund peers, this week called for the board’s replacement, accusing it of trying to “evade accountability for its own poor stewardship and inattention to shareholder interests.” Octagon didn’t respond to messages seeking comment for this article.
Article content
XA in turn accused Octagon of making its own attempts to sidestep responsibility for choosing investments that underperformed, dismissing the idea that the fund’s stumbles are largely a function of poor market conditions. Around half the fund’s holdings are senior loans rather than CLO equity, XA President Kim Flynn told Bloomberg in a Friday email, so the result “is not directly comparable” to CLO equity funds.
Article content
Click for a podcast with Eagle Point Credit on CLOs facing a second straight year of equity losses as borrowers slash funding costs.
Article content
Week In Review
Article content
- Morgan Stanley and JPMorgan Chase joined Goldman Sachs in the high-grade debt market this week, bringing the latest fundraising push by Wall Street’s biggest banks to nearly $34 billion. The banks tested investor appetite after posting second-quarter earnings that largely beat analysts’ projections, as they benefited from buoyant markets, ongoing volatility and a resurgence in dealmaking.
- All six major US banks that posted results this week said they set aside less money to cover bad loans, a sign of growing optimism about the outlook for borrower defaults.
- Bonds sold by hyperscalers have become a drag on investor portfolios. From falling prices and wider spreads to negative total returns, the debt is underperforming on almost every metric. The bonds are in the red on average, according to data compiled by Bloomberg, and rank among the worst performers in indexes this year.
- Data-center operator Prime Data Centers postponed a planned bond sale, in a sign of the limits of investor demand for AI exposure.
- Read more: Pure Data Centres Scraps Bond Sale in Favor of Bank Loans
- Wall Street banks, scouring every corner of the capital markets to finance the AI buildout, are turning to leveraged loans, with QTS Realty Trust more than tripling the size of a proposed loan to $3.25 billion. It also nixed plans for a $1 billion bond offering.
- CoreWeave is seeking to raise $2.6 billion in debt in the leveraged loan market.
- A steady flow of second-half debt issuance from the biggest US technology companies — including Microsoft’s expected return to the bond market — is likely to keep valuations under pressure for the remainder of 2026, Barclays said.
- Read more: Data Center Troubles Stoke Industry’s Fear of Coming Distress
- GMI Cloud, another US-based data center operator, is seeking a NT$20.45 billion ($635 million) multi-tranche loan deal supported by customer contracts for GPUs, one of the first such financings in Asia.
- Data-center operator Prime Data Centers postponed a planned bond sale, in a sign of the limits of investor demand for AI exposure.
- Royal Bank of Canada is expanding its credit derivatives trading business in the US and Europe, betting that multibillion-dollar fundraising for AI will fuel demand for hedging products.
- Sculptor Capital flagged several “warning signs” in markets that have led it to take profits and reduce exposure across most strategies after posting a net year-to-date return of 7.9%. Those signals include heavy issuance across credit, equity, and convertible markets, and spiking volatility and high inflation.
- CoreLogic amended the terms of its roughly $5.3 billion debt offering and shifted part of the funding to loans from bonds after struggling with lukewarm investor demand.
- Robinhood Markets is gauging investor interest in a bond backed by bills for its branded consumer credit cards, in what would be the firm’s first offering of its kind.
- The New York Yankees are in advanced talks to raise nearly $3 billion of financing from Apollo, as more institutional capital flows into professional sports.
- Read more: Apollo Likens Risky Private Credit to Mere ‘Sprinkle’ on Cupcake
- Klarna is seeking to offload credit risk tied to a portfolio of ‘buy now, pay later loans’, in a deal aimed at freeing up capital as it looks to accelerate its international expansion plans.
- KKR started marketing a debt deal tied to PayPal’s buy now, pay later business in Germany, the first of its kind in Europe.
- Luxury-car maker Aston Martin is in talks with funds including BlackRock-owned HPS to raise additional finances to shore up its available cash.
- A group of secured creditors of Altice International Sarl sent a default notice to the telecom firm, alleging it violated the terms of its debt by shifting money and assets out of their reach.
- Troubled business services giant Foundever Group reached an agreement with a group of creditors to reduce its multi-billion dollar debt load, with the company’s controlling shareholder injecting fresh funds and installing new management.
- Thames Water is working to raise more debt in case it runs out of cash while talks for a rescue deal drag on.
- Elliott Investment Management and Veritas Capital Fund Management-backed Cubic Corp. is negotiating with some of its lenders for an injection of fresh capital, a year after it inked a similar deal to redo its debt stack.
Article content
On the Move
Article content
- Apollo hired James Keller from Goldman Sachs as a managing director in charge of investment-grade syndication, as part of its Apollo Capital Solutions team.
- Singaporean asset manager CapitaLand Investment disbanded its special opportunities team, bringing an end to a dedicated unit that was set up to pursue investment strategies that typically came with higher risks.
- UBS hired former Goldman Sachs managing director Takehiro Sakuramoto as head of debt capital markets for Japan, as the Swiss lender seeks to rebuild its presence in the Asian nation’s corporate bond market.
Article content
English (US)