Victory Park Capital Specialty Lending returns to positive NAV in Q2

Victory Park Capital Specialty Lending (VSL) has said it is pleased with its second-quarter net asset value (NAV) return of 3.25 per cent, given challenging market conditions.

The alternative lending-focused investment trust posted a quarterly NAV return of 3.25 per cent – up from -2.62 per cent in the first quarter.

However, revenue returns dipped to 3.1 per cent from 3.39 per cent over the same period.

VSL said that collection performance has beaten its downside expectations on nearly every portfolio investment since the pandemic began, and said that the structural protections – security and covenants backing its investments – have remained resilient to macroeconomic stress.

“The underlying credit portfolio is seasoned and has deleveraged with significant levels of cash being generated at the special purpose vehicle level as a result of reduced levels of originations combined with the short duration of the underlying portfolios,” the fund said in its quarterly letter.

“In addition, we also reduced the gearing ratio of the company by using repayments on balance sheet facilities to pay down both the non-recourse first out facilities and the company’s Pacific Western Bank facility.

“Given the above we feel that our portfolio is well positioned to sustain any continued volatility or deterioration in the credit environment as the effects of the immediate fiscal stimulus in the US start to be reduced and the long term impacts of the crisis unfold.”

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VSL has four existing investments in the US, where the firm noted “the complete dislocation of the stock market from the job market and the dominance of tech companies across all verticals”.

It noticed a shift in housing trends in the country, with people leaving large cities and high-tax states in favour of suburbs and low-tax states.

“At this point short of a widely distributed vaccine it is unclear to us what will reverse this trend in the near term, but we continue to think through how these dramatic trends can create either risk in our existing portfolio and create opportunities for VPC in the future,” it said.

VSL also said it has recently been concentrating its efforts on non-US businesses and in the past two months has closed two transactions and is in final diligence on a third.

These include the closing of an £80m debt facility to help finance the expansion of Australian payments company Laybuy in the UK.

Looking ahead, VSL said that the support provided by governments and central banks has created “a relative air pocket in economies around the world, and certainly so in the US” and predicted volatility in the medium term once that support tapers off.

“We will continue to be cautiously deploy capital, but to repeat ourselves at this point we feel the portfolio is well positioned to withstand future shocks changes to come this year and next,” VSL said.

In June, a continuation vote was held at VSL’s annual general meeting, where 86.6 per cent of shareholders backed the investment company carrying on with its operations.

Shareholders had expressed concerns about the conditions for allowing the fund to continue but the board promised an option to vote on the closure of the fund next year if they are still unhappy with its performance.