Superior, risk adjusted returns while focussing on capital preservation.
Secured Loans are sub-investment grade corporate debt instruments that are secured against the assets of the borrower. Because of this, Secured Loans are expected to offer a higher recovery rate in the event of default than unsecured obligations like High Yield Bonds. Loan investors can also receive the benefit of legal covenants that provide some controls and restrictions over borrowers in the event of weaker performance.
Secured Loans offer a floating rate of income, with a fixed margin above underlying reference rates, giving protection in a rising interest rate environment and less duration risk than fixed rate assets. In most cases, loans will also have protection in a negative interest rate environment, through an interest rate “floor”, which results in loans receiving a minimum base rate of zero even if underlying base rates are negative. Due to their position in the capital structure Secured Loans typically display lower secondary market price volatility than High Yield Bonds.
Alcentra is one of the leading participants in this market, and is frequently approached by private equity firms, arranging banks, and borrowers as a cornerstone investor in high profile corporate financings.
Further information for Japanese residents seeking to invest in a secured loan fund registered in Japan can be found here.