It is a product created to grant medium and long-term financing to companies, through the design, structuring and implementation of financial schemes according to the particular characteristics of each strategic project,over the past decade, bond yields in many developed markets have fallen substantially. In some markets, bonds have come to generate a negative return, which implies that investors pay for the privilege of investing in these instruments. So it is not surprising that many investors have sought alternative sources of income that also offer protection against rising inflation and interest rates.
Corporate loans are senior debt securities secured at variable interest rates, issued by companies. These securities, which are rated below investment grade, represent a relatively easy financing avenue compared to bond issuance. And while repaying a loan may be more expensive than repaying a corporate bond, it also offers more flexibility, since, for example, it allows you to pay off some or all of the debt early.
On the other hand, the increased potential for returns in an environment of rate hikes may be attractive to investors. Historically, corporate loans have performed better than corporate bonds in periods of rate hikes. One of the reasons why this is so is that the coupons of corporate loans are at a variable interest rate, so the investor receives a higher income when rates increase.
Growing demand
The growth of the loan market responds to several factors. Collateralized loan obligations (CLOs), which are vehicles that invest in loan portfolios and issue various securities using those loans as collateral, are the main buyers. The global CLO market has grown substantially since the financial crisis and is one of the most important buyers of new loans. In addition, the continuous search for profitability has encouraged investment in this type of instrument by institutional and retail investors, through investment or exchange-traded funds (ETFs).
Strong demand for loans has had a profound effect on the market. To offset the greater risk of investing in loans (compared to cash), investors demand higher returns. This return is expressed by the credit spread against LIBOR (London Interbank Offered Rate). However, spreads have been narrowing over time, for both new and existing loans.
New vision
Investors typically access this asset class through specialized lending funds. However, expected returns have been reduced and potential risks to the asset class have increased. For this reason, ASI’s multi-asset team opts to gain exposure to loans through funds that invest in asset backed securities (ABS).
These funds invest in various securities of different risk brackets and typically include exposure to corporate lending through clo investment. They often have a large basket of medium-risk securities and are exposed to other asset classes such as residential and commercial mortgages. Currently, we think that these types of funds provide greater diversification and have a better risk-return profile than pure corporate loan portfolios.
All types of business loans are optimized through the virtual data room (VDR), enabling more efficient document organization and sharing, streamlining credit approvals, and saving time for borrowers and lenders.
Loans granted by a club
Easily arrange a pre-marketed loan for a group of relationship banks. best-in-class VDR for document sharing between multiple banks that come together to provide corporate financing.
Real Estate Loans
Documentation on real estate loan transactions continues to grow exponentially. The collection of loan agreements, promissory notes, trust and rent allocation deeds and other legal or marketing documents relevant to any real estate loan business transaction can be simplified.
Trade finance
Both importers and exporters benefit from a more efficient financing process. A VDR can help you organize and share information securely, facilitating smooth processing of all essential documents, including letters of credit, bank guarantees, payment records, and more.
Project Finances
Mitigate risk and realize your business with a VDR: where sponsors, a syndicate of banks and/or institutional investors can easily collaborate to develop the right and solvent bargaining structure. Seamless information sharing ensures that advisors can identify project risks and work to reduce them.
Financing for the purchase of equipment
Asset financing allows many businesses to remain both competitive and profitable, without extending their existing lines of credit or incurring increased financial risk.
Municipal finances
Work smarter. By being regulated and ready for audits, VDRs help organizing banks serve municipalities and non-profit customers. Greater transparency means that public works and other community building projects can be launched more quickly.