Blackstone/GSO Loan Financing delivered a total NAV return per Euro share of 13.28% in 2016, finishing the year with a NAV per Euro share at EUR1.0238. The Euro shares finished the year at a discount to NAV of 1.10%. They paid four dividends in respect of the reporting period ended 31 December 2016, equating to an 8.5% return (based on a placing price of EUR1.00). They increased its target dividend per share on 2 September 2016 to a EUR0.025 quarterly dividend, with the first increase reflected in the dividend payment made on 18 November 2016. They say that performance was strong across the board in the credit market. US senior loans returned 9.88%, registering the best year since 2010. High yield bonds outperformed senior loans, returning 18.37% – their best year since 2009.
BGCF mandated three CLO transactions and retained EUR99 million par value of CLO Income Notes of these transactions, bringing the total of the retained CLO Income Note portfolio to EUR294 million par value.
Bank Loan Market Overview
The European senior loan market returned 6.52% in 2016 as the chase for yield in European credit markets continued. Lower-rated loans outperformed again, with the Lower Tier (CCC, Split CCC and Default) of the Credit Suisse Western European Leveraged Loan Index (“CS European Loan Index”), returning 36.43% while Middle Tier loans (Split BB, B and Split B) and Upper Tier loans (Split BBB and BB) gained 6.44% and 5.11% respectively.
New-issue volume reached EUR71 billion surpassing 2015’s volume of EUR63 billion. While gross new-issue volume appears high, almost EUR30bn relates directly to repriced loans. The lack of new, net paper hitting the market, coupled with strong liquidity from rising repayment levels and healthy CLO issuance, has continued to support secondary levels and compressed spreads in the primary market.
As quarterly repayments rose to a two and a half year high of EUR13.7 billion, the bid in the secondary market was well supported by investors looking to deploy capital. The CS European Loan Index closed the year at a 19-month high of 97.58. The 3-year discount margin tightened 9bps to 522bps, a 16-month low and more than 100bps below the February highs. The secondary rally was more pronounced in high yield, where the CS Western European High Yield Index climbed 60bps to 100.35, over 7 points higher than the February lows. Spread compression and a back-up in rates, however, have many participants cautious on the 2017 outlook for the asset class.
Corporate fundamentals continue to be supportive. In 2016 we saw an uptick in first-lien issuance used to take out second-lien debt, resulting in an increase in first-lien leverage from 4.25x to 4.45x while total leverage marginally fell from 4.96x to 4.93x. The average equity cushion is rising for European LBO transactions, which provides some reassurance for investors. Indeed, the average equity contribution in 2016 was 49.19%, compared with 43.18% for 2015 deals.
CLO Market Overview
With an impressive end to the year, global CLO issuance surpassed the 2016 issuance projections. The US market saw $72 billion of issuance through 156 CLOs, versus 2015’s $98.7 billion through 191 CLOs. In Europe, CLO managers issued EUR16.8 billion through 41 transactions, which not only surpassed the EUR13.8 billion / 34 deals issued in 2015 but also represented the third highest year of issuance since 2001. Strategists anticipate 2017 CLO issuance to remain in line with 2016 and generally forecast $50-75 billion of issuance in the US and EUR15-20 billion in Europe.
In addition to primary issuance, the CLO market was vigorously working to refinance and reset outstanding deals. During 2016, refinancing / reset volume totalled $42.4 billion in the US and EUR3.6 billion in Europe. Activity was heavily weighted to the fourth quarter, where 77% of US and 92% of European transactions occurred.
CLO liability costs generally tightened across both the US and European primary market throughout the year. New issue AAA spreads reached Libor + 141bps in the US and Euribor + 96bps in Europe by year-end. In the secondary market, CLO equity valuations increased significantly, with the average US CLO post-crisis equity price gaining 135% and average European post-crisis equity up 8.8% in 2016. Discount Margins (“DMs”) also tightened globally across the capital structure, with both US and European post crisis CLO tranches trading at or near their 52-week lows.
BGLF : Blackstone/GSO Loan Financing returned more than 13% in 2016