BNP Paribas Flexi III European Senior Corporate Loans (‘the fund’) is an open-ended fund structured as a sub-fund of the Luxembourg-domiciled BNP Paribas Flexi III SICAV. It invests in senior secured corporate loans, issued by primarily European borrowers and typically rated BB- or B+.
The fund offers access to a significant area of opportunity within corporate credit, with the European syndicated loan market valued at around EUR450 billion (source: Credit Suisse, January 2016).
Loans benefit from the highest level of seniority in the capital structure of corporate issuers and are secured by the assets of the borrower, meaning that recovery rates in the event of a default are generally high.
They pay a floating rate, consisting of a base rate (such as Euribor or Libor) together with a fixed interest margin, and offer insurers, pension funds and other institutional investors stable cash income generation and a hedge against inflation and interest rate risk, while providing diversification and shortening overall portfolio duration. For insurers in particular, they offer attractive risk-adjusted returns on capital within a Solvency II framework.
The fund is managed by BNPP AM’s Global Loans team, headed by Vanessa Ritter, consisting of 18 investment professionals, all with extensive corporate banking backgrounds, together with eight dedicated middle office staff. The team is split between New York and Paris, and forms part of the 50 person Private Debt & Real Assets investment group, established earlier this year under the leadership of David Bouchoucha.
The Global Loans team has recently hired two new credit analysts, based in Paris. Thomas Bruneel focuses on the automotive, building materials and gaming & leisure sectors. He re-joined from Moody’s Investor Services, having previously worked in BNPP AM’s Global Loans team in New York and Paris. Tanguy Godefroy focuses on the chemicals sector. He joined from BNP Paribas’ Corporate Debt Platform, where he was responsible for the origination, structuring, underwriting and execution of LBOs, leveraged corporate acquisitions and refinancings across EMEA.
With more than ten years’ experience of managing loan products, the team has a strong track record of credit selection and fund performance, combined with a low default rate and solid returns. Assets under management total EUR5.05 billion across a range of funds, dedicated single- and multi-investor mandates and collateralised loan obligations (CLO 2.0). The team’s first open-ended fund was launched in 2013.
Javier Peres Diaz, Head of European Loans at BNP Paribas Asset Management, comments: “Default rate expectations for the near term remain low, therefore the embedded cost of risk of the loan market should stay quite limited. In light of this, senior secured loans are set to continue offering compelling risk-adjusted returns on both an absolute and a value-relative basis, despite the spread compression witnessed so far this year, which is reflective of the current supply/demand imbalance.
Strong credit support factors, both macroeconomic and technical, should translate into low default rates in the near future. Moreover, average interest coverage metrics suggest that issuers still have significant flexibility to meet financial obligations, and refinancing needs are rather limited in the next few years. Structural shifts in the way companies obtain longer-term financing, combined with improved secondary market liquidity and attractive returns have resulted in growing institutional demand for loans. They offer stable cash income generation and portfolio diversification, together with favourable treatment under Solvency II, all of which are supporting continued allocations by investors. With the launch of our European fund, we aim to help our clients meet their investment needs, while building on the success that our global strategy has enjoyed.”
