James Carthew: Is disaster looming for trusts exposed to private credit?
Law Debenture CEO Denis Jackson recently warned that ‘the floor of the coal mine is piling up with dead canaries’ when it comes to private credit – are investors right to be worried?
Law Debenture (LWDB) published a decent set of interim results at the end of July, but they were overshadowed by the news that James Henderson is planning to retire after 23 years managing the trust. He has done a great job for shareholders and will be sorely missed, but I have every confidence that Laura Foll will maintain LWDB’s excellent long-term track record.
The results for LWDB’s independent professional services (IPS) business were good too, with revenue growing 6% year-on-year and profit before interest and tax up 8.5%, but what struck me was a comment from chief executive Denis Jackson about the outlook for that business.
One of the great strengths of the IPS business is that it can be counter-cyclical. Amongst many other things, IPS acts as trustee for a number of bonds. Its workload and fee income go up significantly if a bond defaults. Denis observed that there has already been a tick up in the number of defaults and restructurings.
But he also notes that history suggests we may be nearing the end of the current credit cycle which began in 2008 following the global financial crisis (GFC). Every cycle ends differently, but in this case, Denis points to the increasing concerns about private credit.
He said: ‘Over the last 6 months I have had scores of conversations with market participants who consistently tell me the same thing, “my portfolio is just fine, but over there things are getting messy”. The floor of the coal mine is piling up with dead canaries.’
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