By Larry Light, October 27, 2020
Chief Investment Officer, Stuart Katz, discusses how he believes private debt can navigate volatility and what potential challenges may lie ahead for the asset class.
“What’s more, said Stuart Katz, CIO of Robertson Stephens Wealth Management, private loans to middle market companies are more difficult than larger companies to be restructured if they default. Worse, too often the borrowers carry burdensome debt loads, with multiples like net debt that can range in excess of six times earnings before interest, taxes, depreciation, and amortization (EBITDA). That can weigh heavily on a debt holder and endanger its business performance.
And many borrowers, Katz warned, don’t have capital structures that can cushion a company in times of stress, such as a solid equity component. “Fixed income is supposed to provide ballast” to a portfolio, he said. Thus, it’s wise for investors to ensure that the debt issuing funds they’re betting on have solid track records—and that the funds ensure borrowers are subject to strong covenants (restrictions of corporate behavior, such as on how much more debt is permissible).”
Read the full article here.
Disclosures
Investment advisory services offered through Robertson Stephens Wealth Management, LLC (“Robertson Stephens”), an SEC-registered investment advisor. This material is for general informational purposes only. It does not constitute investment advice or a recommendation or offer to buy or sell any security, has not been tailored to the needs of any specific investor, and should not provide the basis for any investment decision. The information contained herein was carefully compiled from sources believed to be reliable, but Robertson Stephens cannot guarantee its accuracy or completeness. Information, views and opinions are current as of the date of this presentation, are based on the information available at the time, and are subject to change based on market and other conditions. Robertson Stephens assumes no duty to update this information. Unless otherwise noted, the opinions presented are those of the author and not necessarily those of Robertson Stephens. Indices are unmanaged and reflect the reinvestment of all income or dividends but do not reflect the deduction of any fees or expenses which would reduce returns. Past performance does not guarantee future results. Forward-looking performance targets or estimates are not guaranteed and may not be achieved. Investing entails risks, including possible loss of principal. Any discussion of U.S. tax matters should not be construed as tax-related advice. This material is an investment advisory publication intended for investment advisory clients and prospective clients only. © 2020 Robertson Stephens Wealth Management, LLC. All rights reserved. Robertson Stephens is a registered trademark of Robertson Stephens Wealth Management, LLC in the United States and elsewhere.