Marble Point Loan Financing results reflect tough year for CLOs – Marble Point Loan Financing (MPLF) had a difficult year to December 31, 2018, as the downturn in the loan market in the fourth quarter of 2018 ate into NAV performance. The company invests in US loans directly and indirectly through investments in collateralised loan obligation (CLO) equity and debt securities issued by Marble Point CLOs and Marble Point loan acquisition facilities.
Chairman’s view
The company’s chairman, Robert J. Brown, had this to say on the year’s performance: “The company’s NAV ended the year at US$168.0 million, down from its NAV of US$203.7 million as at the IPO. The reduction in the fair market value of the portfolio was consistent with the market wide decline in the prices of CLO equity. The decline in CLO equity prices was in turn reflective of the risk-off sentiment that impacted all markets towards the end of the fourth quarter.
The company’s share price ended the year at US$0.94 per share at 31 December 2018. In the first two months of 2019, the company’s NAV total return was 9.11%. At 28 February 2019, the company’s share price was US$0.81 per ordinary share. For the year ended 31 December 2018, the company delivered adjusted net investment income of US$20.8 million, which covered the total dividends paid during the year of US$12.3 million.”
The leveraged loan market was strong for most of 2018 due to continued retail inflows and a strong CLO issuance market. However, the loan market experienced a severe sell-off in the fourth quarter of 2018 driven primarily by technical factors.
In December, following statements by US Federal Reserve chairman Powell indicating the Fed was going to take a more dovish stance with respect to interest rate increases, the average loan price of the CSLLI fell 2.74 points during the month to 94.09, marking the worst month for loans in over seven years. This sell-off was principally temporary in nature, the result of forced selling by retail loan funds which, according to J.P. Morgan, suffered over US$15.3 billion of net outflows during December. Retail loan fund outflows peaked during the final week of December at US$3.5 billion, the single largest weekly outflow recorded in the history of the loan market. Total outflows during the fourth quarter of 2018 were over US$20 billion. The sale of assets by retail funds to raise cash to meet these redemptions was the cause of the loan market’s swoon.” [CSLLI is the Credit Suisse Leveraged Loan Index]
Retail funds buy back into loans
Robert discussed the impact of retail loan funds in the recovering prices of loans in his discussion of 2019 so far, adding: “Following the broad-based sell-off in loans observed at the end of 2018, loan prices bounced back during the first several months of 2019. The technical factors that drove the sharp decrease in loan prices during December have largely abated in 2019. It is our belief that the rapid recovery of loan prices was due in part to resumed buying by retail loan funds who may have oversold loans in December to raise excess funds, as previously mentioned.”
MPLF: Marble Point Loan Financing results reflect tough year for CLOs