Market updates and sector developments

IOSCO has called for an improvement in practices in the leveraged loan market and is seeking feedback on a number of good practices it is proposing in connection with CLOs. The organisation notes that a “prolonged borrower-friendly environment” has impacted market practices, giving rise to covenant-lite leveraged loans, increased complexity of documentation and the aggressive use of EBITDA adjustments.  

“The proposed set of good practices are an important step towards mitigating some of the vulnerabilities observed in our work, particularly the possible conduct and conflicts of interest risks observed across the intermediation chain – from leveraged loan origination through the distribution of the CLO notes,” IOSCO sates.

The organisation has released a consultation report that explains why the vulnerabilities identified in the leveraged loan and CLO markets could impact its objectives of protecting investors, ensuring that markets are fair, efficient and transparent, and reducing systemic risk. The report also outlines 12 proposed good practices, which are grouped into five themes: origination and refinancing based on a sound business premise; EBITDA and loan documentation transparency; strengthening alignment of interest from loan origination to end investors; addressing interests of different market participants throughout the intermediation chain; and disclosure of information on an ongoing basis.

In other news…

FCDO anchor investor on BIC IV
Bayfront Infrastructure Management has completed its fourth infrastructure ABS transaction via the Bayfront Infrastructure Capital IV vehicle. The deal is backed by a circa US$410.3m portfolio comprising 40 individual loans/bonds, spread across 33 projects, 15 countries and 10 industry sub-sectors.

Five classes of investment grade notes – classes A1, A1SU, B, C and D – were rated by Moody’s and offered to institutional investors. The class A1SU notes represent a dedicated sustainability tranche and were issued under the Bayfront Sustainable Finance Framework, with net proceeds used to finance infrastructure debt for eligible green and social.

As sponsor of the transaction, Bayfront has acquired the retention preference shares, comprising 5% of the capital structure. Additionally, the UK Foreign Commonwealth & Development Office committed an anchor investment of up to US$20.4m in the preference shares as part of its Mobilising Institutional Capital Through Listed Product Structures (MOBILIST) programme, receiving a final allocation of US$5m, given strong oversubscription for the notes.

The unrated class D notes benefit from a guarantee from GuarantCo, which is rated AA-/A1 by Moody’s and Fitch, for principal and interest amounts payable. GuarantCo is a contingent credit solutions provider that is part of the Private Infrastructure Development Group. The notes were preplaced with funds managed by Apollo Global Management.