Private Capital Call

We continue our special series with the third of our “Five Biggest #PrivateCapital​ Surprises of 2020:” 

Surprise #3: Where Are the Distressed Loans?  

Last April the CEO of a large asset manager said the volume of potential distressed credit investments could be $1 trillion. COVID, he said,  presented “a massive opportunity to deploy capital at a critical time for the U.S. economy.”  

Nine months later we’re still waiting for that opportunity. The speed of the Fed’s rescue helped larger corporate borrowers in tough sectors like airlines and cruise lines. Private equity jumped in quickly along with their portfolio lenders to provide capital and covenant flexibility to middle market companies...

We continue our special series with the second of our “Five Biggest #PrivateCapital Surprises of 2020:”

Surprise #2: Non-Correlated Trends – Infections, Markets, and the Economy

At their lowest moments in the Global Financial Crisis and the Global Biological Crisis, financial markets swooned in synch as investors found no safe havens. Bad news sunk everything. To paraphrase Tolstoy, happy markets are happy in different ways; unhappy markets are alike...

Because last year was so unique, to really capture its themes adequately we’re kick off our special series: “The Five Biggest #PrivateCapital Surprises of 2020.”  

Surprise #1: The Market Snap-Back  

Hard to remember now, but by last March 23rd the Dow plunged almost 11,000 points in less than six weeks to 18,592. Today it sits at almost 31,000. No one knew at the time, but the market had bottomed out. If you went to cash, you lost...

December was lost in a fog of masks and Netflix bingeing. But one item that penetrated our consciousness was a superb credit webinar, courtesy Lincoln International. Their data, gleaned from over 1600 portfolio companies, are a strong proxy for #privatecredit behavior:  

For example, sector performance underlined valuation advantages for less COVID-impacted industries such as tech, healthcare, and business services. The losers remain energy, consumer discretionary, and real estate.  

The “better” companies are pushing multiples above the previous high watermark of Q4 2019 of 9.8x ebitda to 10.4x at Q3 2020....

As we wrap up our special #SPAC series, let’s take a look at the performance of these vehicles over time.   

According to research firm Renaissance Capital, of the 200-plus SPACs launched since 2015, 107 have completed mergers and gone public. Shares in those issuers averaged a loss of 14%. Compare that to an average regular-way IPO return of +49% over that period.  

This year there have been 194 traditional IPOs for $67 billion – the highest level in six years. SPAC activity as been similar 200 vehicles for $64 billion...

Workers unwrapping the Christmas tree at Rockefeller Center last month found a little present. The 75-foot high Norway spruce from Oneanta, NY was sheltering what appeared to be a baby owl.

The stowaway turned out to be an adult northern sawhet that hid in the branches until it was discovered. No word whether “Rocky” planned  other holiday stops on his NYC tour.

Year-end festivities do include more SPAC closings. “There’s been a significant surge of activity on the front end,” one SPAC lawyer commented, “so there needs to be an increase in [merger] activity.”...

For Thanksgiving the noted sommelier and “lifestyle director” Sara Lehman reviewed eleven wines – cabernets, pinot grigios and rosés – all under $10.  

Selections came from Trader Joe’s (“It’s reminding me of apple juice”), Costco (“Give it a nice swirl first”), and BJ’s (“I’m getting some barnyard”). The winner? Target: “If I were to bring something less expensive to my friends.”  

$10 prices reminded us of SPACs. These ‘blank-check’ companies differ from regular-way IPOs by being priced at $10/share, and floating from there.  

SPACs sponsors are seeking investments in colorful sectors...

Besides COVID, the elections, and what the fifth instalment of the Scream series will be called (it’s not Scream 5), what’s getting the most attention is #SPACs, or special purpose acquisition companies.  

These are publicly traded shells with cash looking to buy businesses. SPACs were originally designed to help smaller companies access public equity. For various reasons, they’ve never taken off. That’s changed.  

As our Chart of the Week shows SPAC IPOs zoomed this year. So far in 2020 there have been 183 such vehicles raising $66 billion. Compare that to 2019 when only $13.6 billion was raised from 59 IPOs...

Answer: For most of US history, it was March 4, not January 20. Question: What is Inauguration Day?  

We found ourselves channeling our inner Alex Trebek this week as the nation’s attention began shifting from elections to vaccines.  

Pfizer’s trial results sent Wall Street to record highs. But on Main Street rising infections are propelling a third virus wave across the US, with almost a million new cases reported last week – up from 600,000 only a week ago.  

With winter upon us, COVID will unfortunately march on, impacting commercial activity again...

Given all that’s gone on this year, it’s unsurprising that Election Day came and went, with only a big “TBD” to show for it.   

Results now are mostly in, but this uncertainty had little impact on the capital markets. The S&P had its best week since April and bond yields sank only mildly. As is often the case, business thrives when government is gridlocked.  

October’s HY bond volume of $34 billion, the second highest October ever. BSL activity reached $44 billion for the month – with September’s $50 billion, the best two-month performance since pre-COVID...