In the new Covid-19 paradigm, many leveraged issuers will need to secure additional liquidity buffers, plan a refinancing, proceed to asset sales or face the need to restructure their capital altogether. Such actions require structured investor communications in normal times, but the current environment is adding additional layers of complexity creating specific challenges that issuers will need to tackle when engaging with the various debt investors and lenders.
In communicating with their investors, debt issuers will have to play with different variables, namely timing constraints, the necessity to reposition the investment story and, in most cases, managing broader and more demanding investment audiences.
As central banks across the world, primarily the Fed and the ECB, pour unprecedented liquidity into the markets, their asset purchases have extended, directly or indirectly, to some parts of the high yield markets. As a result, opportunities are opening for both investors and issuers, and an increasing number of high yield issuers will be tapping public and private debt markets in the coming weeks. Knowing when to do this will be critical.
Equally, the current crisis will bring short-, medium- and long-term implications. The credit risk of numerous issuers has been reassessed in the past few weeks and is likely to be reviewed regularly as issuers reposition their investment cases. In doing so, greater emphasis will have to be placed on certain key risk factors, key financial metrics and other operational indicators. Likewise, clear and compelling business plans will need to be presented, whilst issuers are likely to restructure their operations, corporate organisation or capital structure altogether. More than ever, a successful transaction on the debt capital markets will depend on a clear articulation of the risk and return profile and of the investment rationale.
Meanwhile, the investment audience may have changed dramatically. Fallen angels will realise that high yield investors’ information requirements are radically different from the investment grade world. Understanding and addressing different motives and concerns will also be essential for more traditional leveraged issuers and even those facing complex restructuring scenarios.
Preparation, transparency and consistency in messaging will become genuine strategic advantages in this context. Gaining and maintaining support from capital markets audiences will depend on fully addressing those imperatives.
In this paper, we assess the challenges arising for leveraged issuers as they continue to navigate their way through the pandemic and have to adapt their communications and engagement approach.