Harbourmaster manages primarily portfolios of Senior Secured Leveraged Loans which are part of Leveraged Buyout ('LBO') transactions. An LBO is an acquisition by a private equity sponsor which is partially financed by acquisition debt in the form of Senior Secured Leveraged Loans (which Harbourmaster invests in) and Subordinated Debt (which Harbourmaster does not). The Subordinated Debt may include Mezzanine Loans, High Yield Bonds, and Second Lien Loans.
Leveraged Loans are normally defined as:
- the company to whom the loan is being made has outstanding debt rated below investment grade, meaning below Baa3/BBB-/BBB- from Moody's, S&P and Fitch; or
- the company's debt/EBITDA ratio is 3.0 times or greater; or
- the loan bears a coupon of +125 bps or more over EURIBOR
As one of the largest participants in the primary market for European leveraged loans, Harbourmaster is invited to participate in the major leveraged loan transactions being offered in the market. Harbourmaster maintains an active dialogue with all of the principal arranging and underwriting banks in Europe and the US. Harbourmaster's size allows it to participate, where appropriate, as anchor lenders in many of the larger market transactions. Our long history and strong performance track record in the market combined with size and ongoing strong relationships with the arranging and underwriting banks ensure Harbourmaster has no difficulty in accessing and selecting the transactions within the market which Harbourmaster deems appropriate for our portfolio.
We at Harbourmaster are attracted to this asset class due to high recovery potential of senior secured leveraged Loans, noting the following:
- Senior Secured Leveraged Loans, as the name suggests, benefit from a first priority interest in the security which collateralises a leveraged loan. Such security typically includes pledges over shares, bank accounts, receivables, and also mortgages over property.
- Typical covenants restrict payments to subordinated creditors/shareholders.