Marble Point Loan Financing (MPLF) is a closed-end fund that invests in leveraged loans via collateralised loan obligations (CLOs) and loan accumulation facilities (LAFs) managed by Marble Point Credit Management (Marble Point). The experienced credit investment team employs a conservative, disciplined approach. MPLF’s mark-to-market pricing approach directly reflects market volatility and this was notable during the November-December 2018 selloff, when MPLF underperformed its peers. However, its underlying portfolio has been largely unaffected and cash flow generation remains strong. MPLF’s H119 interims showed a 13.5% annualised net investment income backing its 10.1% dividend yield.
As interest rate expectations have fallen, there has been a net retail outflow from the US loan market throughout 2019. However, institutional demand for CLOs remains robust; attracted by the relatively high interest rates and the stable credit quality. Strong US CLO issuance continues and 2019 is likely to be a record year volume-wise, putting pressure on CLO debt spreads. However, the lack of supply of underlying loans have kept loan spreads from widening slightly in 2019 and these two factors together could eat into the returns of the CLO equity investments, which receive the remaining income after debt tranches have been paid (CLO equity tranches account for 76.9% of MPLF’s portfolio). CLOs are still being issued with attractive estimated yields on equity tranches; eg Marble Point CLO XV, which closed in May 2019, is now yielding 12.9%.
Despite MPLF’s relative NAV volatility due to the marking to market, the underlying portfolio has been performing well and generating a good cash flow. Marble Point has a conservative, disciplined approach to investment in leveraged loans, acting with strong conviction and backed by detailed analysis. Its shares are trading with a significant current yield (10.1%) that is well covered. Testament to this, the CLO distributions in Q319 were $7.8m ($0.0379 per share, compared to quarterly dividend payment of $4.1m ($0.02 per share).
The stock is trading at a 1% discount to the last published NAV (31 August 2019) despite delivering a net interest income on NAV of 13.5% in the first six months of 2019. The shares traditionally traded at a premium before the November-December 2018 downturn. We think the company may be penalised for its marking to market approach, paradoxically because it actually provides greater transparency.