The European corporate credit market is returning to pre-crisis levels, despite the concern surrounding sovereign debt markets in the region, according to Steven Blakey, the CEO at London-based European Credit Management (ECM).
"There has been a lot of noise around the sovereign market recently, which has hidden what is happening in corporate debt," says Blakey.
"Corporate treasurers got a big shock in 2002 as debt climbed, and post Enron and WorldCom, debt for even investment grade companies was seen as dangerous. They became very much more conservative and reduced debts levels considerably."
But since last year, issuance has been picking up in Europe, until the regional market, usually playing catch-up with the US, can now claim to be a significant player.
"Credit spreads blew out post Lehman and nothing traded," Blakey told a conference for Family Offices in London.
"But investors are still looking for diversification and spreads are coming back to normal - that is 160bp over Libor, which is what we would consider fair value." ECM always hedges out currency risk back to Libor.
He said institutional investors tended to think of credit in terms of interest rates and foreign exchange, and still needed to grasp the concept of corporate debt.
ECM launched a Ucits III corporate bond fund at the end of 2009 which invests only in investment grade credits in Europe. It offers cash plus 2% net return, with daily liquidity and a six-month to two-year horizon.
"We stick to a diversified group of good credits. Single A or triple B is the sweet spot for us," says Blakey. "The universe has a five- to six-year life in terms of duration."
ECM, set up in 1999 at the time of the launch of the euro, also has a distressed bond fund in the pipeline, likely to be offered in the third quarter of this year, Blakey adds.
