CVC Income & Growth - Equity-like return potential on senior secured debt

FY22 was the first year since its inception that CVC Income & Growth (CVC IG) saw a negative NAV total return (TR). Its euro and sterling share classes produced NAV total negative returns of c 8.3% and 6.8%, respectively, which compares with 3.3% and 1.9% negative TRs by the Credit Suisse Western European Leveraged Loan Index (CS WELLI) in euro and sterling terms, respectively. This was primarily the result of downward mark-to-market valuation adjustments (resulting in unrealised losses for CVC IG), driven by price declines in the European loan market amid higher risk aversion. Meanwhile, defaults in the European loan market remained low at 0.4% in 2022, based on the Morningstar European Leveraged Loan Index (with no defaults in CVC IG’s portfolio). Subsequently, European loan markets rebounded strongly in January and February 2023, leading to 6.7% and 6.9% returns for CVC IG’s euro and sterling share classes, respectively (therefore allowing CVC IG to almost fully recoup the 2022 loss).