Spotlight on Cathy Bevan, Head of Structured Credit, BSP-Alcentra
Global Thought Leader Spotlight
Cathy Bevan, Head of Structured Credit, BSP-Alcentra
In my role as the Head of Structured Credit at BSP-Alcentra, I have the pleasure of working in a team of eight professionals, including myself, a co-portfolio manager and six experienced structured credit analysts, who are focused on investing in 3rd party issued CLO tranches.
We run one global CLO tranche investment team, without geographic silos, that covers the entire market, AAA to Equity and warehouses, primary and secondary – which we see as important due to the interlinked nature of the CLO market. This enables us to find the best relative value across the CLO market. It also keeps our jobs varied and interesting!
We benefit from interactions internally given BSP-Alcentra’s global CLO manager presence, issuing in both US and European markets, extensive experience of our Loan/HY Portfolio Manager colleagues, and the deep credit research bench, with coverage of specific industries across the US and Europe.
The success of our platform lies in our expertise in analysing underlying loan collateral and thorough understanding of CLO managers and documentation.
Key themes driving risks and opportunities
In the CLO market, there are several key themes driving risks and opportunities, which include:
Macro environment: this is most in focus since the US administration’s announcement on tariffs on the 2nd of April. Heightened uncertainty and rising recession risks have led to volatility across markets impacting loans and CLOs. We think that this is creating a great buying opportunity for CLO mezz tranches, but obviously that could all change very quickly based on the next tweet from Trump! There is potential that outflows from AAA CLO ETFs could create opportunities in AAA tranches as well.
Elevated default rates and continued borrower stress: Idiosyncratic weakness on specific names that were over-levered, have underperformed, or are impacted by tariffs will persist. US default rates are elevated, and European default rates are expected to go up, from a very low level in 2024, but are likely to remain lower than the US. LMEs are a concern for US recovery rates whereas Europe has more strict lender protections. For this reason, we generally prefer mezz over CLO equity and are overweight EU vs US, other than in AAAs where we favour the US.
Changing supply/demand technicals: We have seen the primary market slowdown due to the uncertainty over tariffs and the geopolitical landscape. Also, the market is actively digesting the impact of CLO ETF outflows following significant growth in the last year, notably in AAAs.
Implications for institutional investors
Rated CLO debt tranches provide protection from the first losses in the loan portfolio, which can be a great way to hide from defaults. In addition, they have very long credit spread duration vs HY and loans, and therefore tend to dislocate more. As such, they can be very attractive to add in periods of dislocation. They offer price convexity whilst allowing investors to hide from defaults. In the current environment they also offer high cashflow as they pay wide spreads over base rates.
CLO equity can be attractive in this environment if the CLO manager can buy cheap loans – effectively you need to bet on refinancing the wide CLO liabilities in one or two years’ time. Other than that, we would be cautious on CLO equity here, given the likely softer macro environment. We are not expecting a major recession or very high defaults, but we do expect defaults to remain a feature of the market, especially in the US. Given the manager is ultimately responsible for managing the CLO portfolio, we are very focused on the quality of the manager when buying CLO equity. This is always a good idea, but I would say it’s more important now than ever before. We have been in a relatively benign default environment for the past decade plus.
Cathy will be presenting at Global Investment Institute’s upcoming Private Credit Investment Forum, taking place on Thursday, 8 May 2025 at the Grand Hyatt Melbourne, Victoria. To register your interest in attending, click here or for more information email zlatan@globalii.com.au.
Cathy Bevan, Head of Structured Credit, BSP-Alcentra
Cathy is Head of Structured Credit and a Portfolio Manager for BSP-Alcentra’s structured credit funds overseeing investments in structured products, with a particular focus on CLOs. She has expertise investing across EU and US senior, mezzanine, equity CLO tranches as well as CLO warehouses.
Cathy joined BSP-Alcentra’s structured credit team in July 2012. Before joining Alcentra she worked at Citigroup as a member of the structured credit team, responsible for originating and structuring CLO transactions. Prior to this she performed a similar role at CIBC World Markets as part of the CLO/CDO structuring desk.
Cathy graduated with a First Class Honours degree from the University of Warwick in Mathematics and Statistics.
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