European Credit Fund Targets Alpha in Sub-Investment Grade Debt

CVC Income & Growth is employing a focused European credit strategy managed by Pieter Staelens. The core objective is to generate consistent income and capital appreciation through a diversified portfolio of sub-investment-grade corporate debt. The fund primarily targets senior secured floating-rate loans and bonds, which are positioned favorably within a company's capital structure and are backed by collateral.

The strategy operates with two distinct components. The performing credit sleeve involves purchasing loans at par and collecting regular coupon payments. Complementing this is the credit opportunities sleeve, which actively seeks out underperforming loans that are trading at a discount. This approach capitalizes on potential recovery values that could return the loans to par, especially when market conditions create opportunities.

Valuation anomalies, often stemming from rating downgrades that trigger indiscriminate selling by passive funds, present key opportunities for this active investment approach. The fund favors established companies with strong pricing power and tangible assets, showing selectivity, particularly in asset-light sectors like software. Discussions also touched upon a recent placing and retail offer, investor demand, and the advantages of floating-rate credit in the current interest rate environment.