Unstructured Finance

Got those zombie company covenant lite blues

Zombies 2One of the big drivers of the debt balloon that imploded so spectacularly was the trend for covenant “lite”, which has allowed zombie companies to stumble on long past the point at which it would have been useful for creditors to intervene. This has sharpened the appetite for stronger corporate governance around covenants and persuaded investors that they need to take more of an active interest in what companies are actually doing with their money.

Enter the engaged bond investor – for a long time the domain of equity investors with a social conscience, socially responsible investing (SRI) is now being applied to bond portfolios by asset managers Aviva Investors and F&C.

Paul Abberley, CEO of Aviva Investors UK, told Reuters that Aviva is adding a specialist bond fund manager in its SRI group, with scope to increase the headcount depending on how client interest develops. “Historically SRI has been viewed as an equity activity but we think there is a strong case for fixed income to be considered as well,” he said. Initially any offering would be mandate based, he said, with a fund launch dependent on client interest.

The move follows F&C’s recent decision to extend its corporate governance engagement to corporate bonds. “We are initially focusing our engagement where there is an overlap between our interests as shareholders and our interests as creditors,” said George Dallas, director of corporate governance at F&C. “We think this will enhance the assets under management that we are representing because a lot of companies are very debt focused.”

The development is part of the broader trend amongst ethically-inclined investors to extend SRI principles to all areas of their portfolios. Fund firms have been busy trying to add SRI overlays to emerging market equity strategies, for example - far from simple given the quality of information and poorer corporate goverance in some of these markets.

Saving Hendry? Thanks but no thanks, says Hugh

rtr1z9ud1It was always unlikely that a letter of advice was going to change the mind of maverick hedge fund manager Hugh Hendry.

 

And in his latest letter to investors, Hendry has smartly rebuffed any attempt to ‘save’ him from his bond investments.

 

The letter in question – Gregor.us’s monthly note, entitled “Saving Hugh Hendry” – praises the Eclectica co-founder and CIO as a “brilliant and colourful” hedge fund manager who saw the coming storm and took cover well in advance.

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