Alcentra

Alcentra - Focused on sub-investment grade debt capital markets in Europe and US.

The group benefits from:

The group has an investment track record that dates back to 1998 and spans across 29 separate investment funds totalling over US$ 16.6 billion.^*

 

Leveraged Loans
Leveraged loans are corporate bank loans of below investment grade issuers bearing floating interest rates typically based on LIBOR, a widely used floating rate index. These loans are generally senior secured obligations, which are at the top of an issuer's capital structure. Given the secured nature and floating rate structure of leveraged loans, price volatility and correlation with other asset categories have remained low.

The leveraged loan market provides opportunities consistent with our overall objective of earning superior risk-adjusted returns while focusing on capital preservation. Because loans to creditworthy issuers provide limited opportunity for capital gains (these loans are purchased at or near par), success in the leveraged loan market requires an avoidance of credit problems and defaults. Accordingly, in order to manage these assets effectively, Alcentra employs people with credit analysis and asset selection experience.

European Mezzanine Loans
European mezzanine Loans are a hybrid floating-rate loan product filling the funding gap between senior secured debt and equity. They typically share collateral with senior secured lenders, albeit in a junior position. Yield is achieved by a combination of cash-pay coupon, rolled-up interest ('Payment-In-Kind' and usually referred to as PIK) and there may also be equity warrants, to achieve a total return.

Since mezzanine is a higher risk product than senior secured loans, Alcentra adopts a more conservative approach when assessing potential investments and the hit-rate of investments made versus opportunities analysed is significantly lower for mezzanine than for senior secured loans. Each transaction will involve the same detailed due diligence undertaken for new senior loans, although final investment selection will require Alcentra placing greater focus on the equity story and exit strategy of the financial sponsor as this will greatly impact Alcentra's final IRR on the investment.

High Yield Bonds
High-yield bonds are issued by organisations that do not qualify for "investment-grade" ratings. These assets are generally unsecured, rank behind the senior debt and issued on a fixed rate basis. This asset class provides a high rate of current income and the potential for capital appreciation if the capital structure is delevered through good business execution and debt is upgraded by rating agencies. Due to greater risks involved in this asset class, Alcentra’s strategy is to focus on better performing and non-cyclical names, avoid exposure to certain riskier sectors (travel, airlines, shipping hotels) actively monitor positions and engage in disciplined trading.

^{* as at 30 September 2008}