Special opportunity funds take advantage of the stress through loan to own
Negotiations are already under way between new lenders playing the loan-to-own strategy against stressed portfolio companies in rival managers’ private equity funds.
HSBC took a $3 billion charge for the quarter and could reserve from $7 billion to $11 billion for loan losses for the whole of 2020. Barclays took a £2.1 billion impairment saying that low credit losses so far simply do not reflect the impact of the coronavirus Covid-19 pandemic. BBVA took a €2.6 billion provision, Societe Generale €820 million, and Deutsche a much more modest €506 million.
Euromoney is surprised that bank analysts are surprised. We are, after all, facing the swiftest and steepest economic collapse since the great depression and at a time of record high private and public debt to GDP.
Far more startling is the low expectation for defaults among high-yield issuers implied by market pricing at the end of April – perhaps 10% for US issuers and as low as 6% for European issuers that tend to have higher credit ratings, according to analysts at Deutsche Bank.