Event-Driven Credit – An Evergreen Strategy
The strategy offers a dynamic and versatile approach for opportunistic investing across all market conditions.
BlueBay sees five key points to capturing the opportunity in event-driven credit:
Event-Driven Credit – Multi-Strategy Approach
BlueBay is agnostic on sector, industry, or security type.They have developed different strategies to invest up and down the capital structure that offers the best risk adjusted return in their view. The allocation between strategies will typically be determined by the availability of different opportunities throughout the credit cycle.
BlueBay breaks down event-driven credit into five distinct sub-strategies:
Event-Driven Credit – Accelerating Market Opportunity
BlueBay believes the following factors may create a once in a decade opportunity for event-driven credit investing.
Macro Factors
- 2022 Breakout of Core Inflation
- 2022 Breakout from 30yr downward rate cycle
- Residual effects of Covid-19 including:
- Energy, Commodity & Wage Inflation
- Weaker Consumer?
- Looming Recession?
Impact on Businesses
- Unsustainable higher leverage
- Unsupportable financing costs
- Deferred liabilities
- Reduced profit capabilities
- Banks tighten lending standards
- Increasing default rates
Source: RBC BlueBay Asset Management views, as 6/30/2023.
1 Source: Bloomberg, World Economy Weighted Inflation YoY%, as of 7/11/2023
2 Source: Bloomberg, German 10-year bond yield, as of 7/11/2023
Source: Bloomberg, Apollo Chief Economist. Note: Filings are for companies with more than $50 million in liabilities. For week ending June 21, 2023.
Why UK and Europe?
UK/EU are Epicenter of Global Stress & Distress in 2023
- Expanding Universe of Investable Ideas
- July 2023 Europe’s Mid-Market is 2x larger than in 2008
- BlueBay’s investable universe has expanded 4x from 2022 to 2023*
- Public & Private Credit Opportunities
- Broad Impact: Entertainment, Shipping, Healthcare, Energy, Chemicals, Real Estate, Retail, Manufacturing, Glass, Paper & Packaging
Why Mid-Market Companies?
Mid-Market Defined as €20m - €500m
- Less resilient to Economic pressures of 2022/23
- Little access to Global Capital Markets
- Must rely on decreasing Bank funding
- Banks have called loans when operational turn around was possible
- Limit competition for €20m-€30m deal size
- Big New York & London Hedge funds rarely drop below €250 million in deal size
Based in London, RBC BlueBay is well placed to analyze, understand & capitalize on these opportunities.
* Between January 2022 to mid-2023, BlueBay’s watchlist expanded from 70 to 300+ companies.
Learn More about Event-Driven Credit
Destra has partnered with BlueBay Asset Management to create the BlueBay Destra International Event-Driven Credit Fund (CEDIX). BlueBay has extensive history in managing event-driven credit strategies. For more details from BlueBay regarding the EDC space, please complete this form to receive a copy of the Developed Markets Special Situations Whitepaper.
