In Creditflux, Ropes & Gray Credit Funds & Lending Leaders Discuss the Impact of COVID-19 on the Corporate Credit Markets

In a series of articles published in the April issue Creditflux’s newsletter, credit funds initiative leader and asset management partner and credit funds leader Jessica O’Mary and finance partner and direct lending co-head Alyson Gal examine the impact of COVID-19 on asset managers, direct lending funds and the corporate credit markets.

• An article titled “You wait 12 years for loan dislocation and $1 trillion comes along all at once” discusses how distressed debt managers have the best entry point in many years as the S&P/LSTA Leveraged Loan Index plunged to 80 in just two weeks. A number of debt managers are pursuing “short fundraises with short investment periods, rapid realizations, sometimes with traditional economics and sometimes with lower management fees and higher carried interest, in order to take advantage of this dislocation,” Jessica outlines.
• The article titled “Lenders look at MAC clauses amid revolver demand” reports that a plethora of revolver draws has swept through the corporate credit markets. While banks and asset managers have so far shown the capacity to meet their unfunded commitments, the material adverse change (MAC) clause in credit agreements could allow them to pushback on borrowers. “A borrower must make representations and warranties that there hasn’t been a material adverse change,” Alyson said in the piece. “The borrower can make that representation and lenders can question it,” she continued.
• A story titled “Asset managers pull all liquidity levers to satisfy borrowers” outlines how a paramount concern for many investors in direct lending funds is whether asset managers have enough liquidity to meet borrower requests for funding.  “There is a lot of interest in putting more money into these companies,” says Jessica, adding “Most lenders and borrowers are working through the current situation.”
• A report titled “Managed accounts pose flexibility check for direct lenders” states that direct lenders are closely analyzing portfolio companies hit by coronavirus volatility for signs of financial stress, ready to inject capital and extend flexibility to companies where needed. “Managers and investors alike are wishing there was a bit more flexibility, said Jessica. “In some SMAs the manager has been restricted from taking actions that require a quick response but that also need the consent of the investors,” she highlights.