Prophet Capital restructures hedge fund CLO amid a market rebound

WASHINGTON (Reuters) – Prophet Capital Asset Management LP, a structured loan and debt investor with $ 2.5 billion in assets, restructured a hedge fund that was rocked by the market turmoil in March, said Friday an executive of the company.

Reuters reported in March that New York and Austin, Texas-based Prophet Capital had temporarily blocked investor withdrawals from its fund Prophet Opportunity Partners LP with a view to ultimately dissolving it, amid extreme volatility triggered by the emergence. of the coronavirus.

The fund primarily held high-yielding secured loan bonds (CLOs), which were hit hard by fears over the widespread risk of corporate loan defaults resulting from pandemic lockdowns.

The CLO market has since rebounded significantly, allowing Prophet Capital to raise new liquidity for the fund and let investors redeem their money, said David Rosenblum, a partner at the company.

As of January 1, the fund offered investors three options: cash in at net asset value, stay invested but sell their inherited assets over time, or reinvest with a two-year lock-up that would make it easier to manage the fund over time. time. of extreme volatility, Rosenblum said.

The restructuring underscores how much lower default rates in the leveraged loan market have been feared, in large part thanks to the extraordinary interventions of the US Federal Reserve.

“The CLO market has had one hell of a boost this year, the boost to end all the lashes,” Rosenblum said.

“When all the stimulus hit the market, the stock market rallied sharply and corporate bonds tightened tremendously, bank lending, even troubled bank loans, took the wave.”

In 2020, CLOs returned 3.11%, according to data collected by JPMorgan. The lowest-rated tranches earned much more, with the BB tranche earning 8.04%, according to the bank.

An investor in the fund before the pandemic said his company bought back its capital at net asset value, “a much better result than we feared.”

Reporting by Michelle Price; edited by Jonathan Oatis

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