Friday, March 28, 2014

About Time

I have been waiting to read about investment funds moving into Spanish real estate.  Here is a Bloomberg article on a new REIT, Merlin Properties SA, being formed to buy commercial real estate in Spain and to a lesser extent Portugal. 

Do You Know What's In Your BDC?

Business development companies (BDCs) publish a list of their investments every quarter.  But do you really know what's in your BDC?  Probably not.  This article from the Financial Times is worth reading (requires free registration if not a FT subscriber).

According to the article, leveraged loans (loans to companies already with substantial debt) classified as single B, which are the main components of BDCs, made up more than a third of new issuance in 2013.  This reversed a recent trend where more higher rated bonds were issued, and this was the first time since 2004 and 2005 where more single B loans were issued than double B loans.  The resurgence of lower rated loans indicate a loosening of credit markets as investors seek higher returns in investments with higher risk.
The article also touches on the return of covenant-lite loans (think no-doc mortgages) and payment-in-kind loans (interest payments added to loan principal, not cash, so think negative amortizing mortgages).  I have not seen any payment-in-kind loans in BDCs, but I'm not sure whether a BDC would have to disclose whether its loan portfolio included covenant-lite loans.
BDCs own, originate and purchase high yield loans.  That's no secret.   Lending to small, unrated businesses is the primary mandate of the BDC structure.  The article concludes by stating that investors are attracted to B-rated loans by the chance to earn high returns will retaining seniority.  I want to see more information on the borrowers and types of loans in BDCs. 

Wednesday, March 19, 2014


At a conference earlier this week I over heard a real estate sponsor claim with pride - and a strait face -  that his REIT had no debt.  He then added the caveat that he didn't count the REIT's $40 million line of credit as debt (I'm sure his bankers have the same impression).  The sponsor also didn't include the 60%-plus debt on each of the REIT's properties.  The sponsor can make this specious boast because the REIT owns the properties through what is known as special purpose entities (SPEs), stand-alone companies (usually limited liabilities companies) whose sole purpose is to own one asset.  The catch is that the SPE's sole owner is the REIT.  So the while the sponsor's pronouncement is technically correct, it is also complete BS.

Friday, March 07, 2014

Nothing Story

This InvestmentNews story is a big fat nothing.  When I read the headline I thought ARC and KBS were in a new fight, but it turns out its an old (2009) issue.  I am shocked to learn that wholesalers would take their contact lists with them when changing jobs.  What has this world come to?