CVC Credit Partners European Opportunities (CCPEOL) aims to achieve a blend of capital growth and income (target total returns of 8–12% pa, with c 5pp from income) by investing in high-yielding debt instruments such as senior secured loans and sub-investment grade bonds. The portfolio is biased towards large, liquid issuers (€600m weighted average EBITDA) in Western Europe, although up to 40% may be allocated to non-European markets. The underlying investment vehicle holds a blend of investments in performing credit, where returns come mainly from income, with a credit opportunities portfolio made up of discounted assets that offer higher yields and the potential for capital growth. CCPEOL’s performance since launch in 2013 has been solid, although the broad-based sell-off in late 2018 has affected returns more recently. The fund has sterling (CCPG) and euro (CCPE) share classes, which have tended to trade close to NAV, and currently yields just over 5%.
CCPEOL is managed by CVC Credit Partners, a specialist global asset manager with a large team and a proprietary database covering c 4,000 credits. The fund invests through a Luxembourg-based investment vehicle, CVC European Credit Opportunities (CEC). It has two pools of assets; performing credit consists mainly of senior secured loans from large, liquid European issuers, while credit opportunities offers capital upside from investment in credits that are priced well below par but have recovery potential. The managers allocate flexibly between the two portfolios.
Loan and high-yield bond markets were not immune to investor risk-aversion in the latter half of 2018, leading to capital outflows, price declines and a dramatic slowing of new issuance. Although macro and political worries remain, a likely pause in US rate hikes could provide support for high-yield credit, and the more difficult market conditions could prove favourable for opportunistic investors in distressed assets.
Both CCPEOL’s classes of share have traded close to NAV on average since the fund was launched in June 2013 (average premiums of 0.1% for CCPG and 0.5% for CCPE), and began 2019 similarly, with CCPG shares at a 1.1% discount and CCPE shares at a 1.4% premium to NAV at 1 February (based on 18 January NAVs). A quarterly tender facility acts to limit any potential discount and shares may be issued on an ad hoc basis to satisfy excess demand. Both classes of share currently yield a little over 5%, with dividends paid quarterly.