CVC Credit Partners European Opportunities (CCPEOL) aims to achieve a blend of capital growth and income (it targets gross total returns of 8–12% pa, with c 5pp from income). The portfolio is positioned defensively, mainly in senior secured debt of large issuers (average EBITDA above €500m) from Western Europe. Long-term NAV net total return (TR) performance remains broadly intact at 6.4% pa over three years (vs SP ELLI at 3.5% pa), despite weaker performance during the Q418 downturn. Currently both share classes offer a dividend yield in excess of 5%, largely covered by coupon income according to our estimates.
CCPEOL invests through CVC European Credit Opportunities (CEC) into two pools of assets: performing credit representing mainly senior secured loans from large and liquid European issuers and credit opportunities of assets priced below par with recovery potential. The portfolio manager has been taking advantage of the recent increase in high yield bond prices, shifting the allocation to primary performing credit, which currently offers more attractive spreads. This has helped to increase the yield of the portfolio to 6.1% at end-June 2019 from 5.8% in September 2018. CEC retained its defensive positioning, with 89% of the portfolio allocated to senior secured assets at end-June 2019.
The concerns over political tensions and global economic slowdown that triggered the late-2018 deterioration of market sentiment remain in place. However, the credit market’s performance should be supported by central banks’ recent dovish announcements suggesting a continuation in accommodative monetary policy. Although we note a degree of weakening credit quality as illustrated by the high proportion of covenant-lite debt, we also note that default rates remain at historically low levels and a corporate debt maturity cliff is not expected till 2024- 2025.
Both CCPEOL share classes have traded close to NAV on average since the fund was launched in June 2013. Following the Q418 sell-off, the discount widened slightly and currently stands at 4.2% for CCPG shares and 3.9% for CCPE. CCPEOL offers an above 5% dividend yield, which is largely covered by coupon income.