Market Tenor
What an odd year 2020 has been. Public equity, high yield and leverage loan markets crashed in March for a reason—the economic calamity related to COVID-19. Private equity and private credit were especially challenged because illiquid assets could not be sold if there was a desire to do so, and capital initiatives were focused on making sure portfolio companies had liquidity to survive. Then a rally started in late March that has seen only a few interruptions since.
As year-end approaches, VC and private equity will celebrate the biggest IPO year since 1999 with over $150 billion of equity raised. Part of the haul is attributable to large IPOs, including Airbnb Inc. M&A has started to rebound, too. Salesforce.com is set to acquire Slack Technologies. The monetization of many investments will allow sponsors to reinvest in new ventures and provide capital to portfolio companies if needed.
Credit has rallied sharply, too. The option adjusted spread (“OAS”) on the ICE BofA High Yield Index peaked on March 23 at ~1100bps then narrowed to~400bps by early December. The 10-year and 20-year average OAS are 493bps and 576pbs with the differential indicative of the severity of the 2007-2009 meltdown and the soothing influence of Fed “support” the past decade.
The strong market for credit has supported a rebound in another form of equity monetization: dividend recaps. In this issue of Portfolio Valuation we review the concept of fraudulent conveyance and how solvency opinions can address the issue before something goes awry after a dividend recap occurs or other significant transaction that leaves a company more indebted and/or less heavily capitalized with equity.
FEATURE ARTICLE
Fraudulent Conveyance and Solvency Opinions
Also in This Issue
Updated Metrics for
Private Credit and Equity
Publicly Traded Private Credit
Venture Capital