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Marble Point loan fund drops 8.5% in US credit sell-off

4 January 2019

Turmoil in US leveraged loans has hit Marble Point Loan Financing, one of last year's new investment company launches, pushing its net asset value down 8.5% in November.

Turmoil in the US leveraged loan market has hit Marble Point Loan Financing (MPLF), one of last year's investment company launches, pushing its net asset value (NAV) down 8.5% in November.

The £153 million Guernsey-based fund, which launched last February, invests in US-dollar denominated ‘collateralised loan obligations’ (CLOs) and offers a 5.3 yield.

CLOs are bundles of senior, secured, high yield US loans with ‘floating rates’ whose coupons should rise with US interest rates. MPLF buys majority stakes in the equity notes of CLOs issued by its fund manager Marble Point Credit Management in Greenwich, Connecticut. These are the highest yielding but riskiest portion of the bundles.

It also buys stakes in CLOs managed by other fund managers although with a range of risk profiles.

According to its latest monthly report, the company was hit hard by the declines and volatility in credit and equity markets in November.

In particular, the widening of credit spreads on loans - which measure the difference between their yield and that of US government bonds, or treasuries - caused loan prices to drop and knocked the valuation of CLOs.

This caused private investors to panic with $2.9 billion pulled from retail loan funds forcing their managers to dump holdings in order to raise the cash for redemption requests. As a result the Credit Suisse Leveraged Loan index fell 0.82%.

Sentiment was further undermined by two companies, David's Bridal and Full Beauty Brands, defaulting on their high yield loans although MPLF held neither.

The impact of the falls has pushed MPLF shareholders into the red with the net asset value (NAV) of their investments down 8.5% since launch.

Liberum analyst Conor Finn said the performance was the weakest of the CLO funds, which include Carador Income (CIFU), Citywire award-winner Fair Oaks Income (FAIR), Blackstone GSO Loan Financing (BGLP) and Volta Finance (VTAS). Nevertheless, at yesterday's closing price of 94 cents the shares traded at a 9% premium over their estimated NAV per share of 86 cents, according to Morningstar data. 

This is in stark contrast to the average 11% discount of its peers, prompting Liberum analyst Conor Finn to comment that ‘we doubt this is a "true" price as there is very little liquidity in the shares’.

Marble Point expressed confidence in a recovery. ‘MPLF's investment manager currently sees attractive investment opportunity in this more volatile loan market and believes that the locked-in financing of CLOs provides the opportunity to improve cash flow over the long term by buying loans at lower prices and/or with wider spreads.’

Since the end of November, the fund has committed $26.2 million to new investments but said it buys loans with a ‘margin of safety’ based on ‘loan-to-value ratios’.

MPLF launched into a difficult market in February last year, raising less than half of the $100 million it was aiming for, although it started with net assets of $200 million thanks to a $163 million seed portfolio from Marble Point.

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