Despite the fledgling recovery that began to take root in Europe last year and is slated to continue this year, many European companies are still finding it hard to access credit.
Without sufficient credit, it is tough for businesses to grow, said Michael Forman, CEO of Franklin Square Capital Partners, particularly when the macroeconomic environment remains shaky. In Europe, banks, which traditionally have dominated corporate lending , are still struggling with the many non-performing loans on their balance sheets, and increased regulation imposed by Basel III is making it harder for them to extend credit.
As such, many viable companies across the continent are going to find it difficult to continue to fund operations, and this creates uncertainties for investors.
Keeping those companies going is one of the main strategies behind Franklin Square’s new fund, FS Global Credit Opportunities Fund, which seeks to generate an attractive total return, while also focusing on capital preservation, by investing in loans, bonds and other credit instruments of public and private companies, with a strong focus on the European and U.S. markets.
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“In Europe today, there’s a real opportunity to step in as a lender of choice and fill the void for companies that need to refinance their bank loans,” Forman said. “We want to be a lender of choice in Europe to companies that need to refinance their bank loans and with banks playing less of a lending role, we think there’s a huge opportunity here.”
Launched in early December, FS Global Credit Opportunities Fund employs an event-driven approach, focusing on companies that it believes are undervalued by the market. The fund intends to refinance the debt of European companies it believes have viable businesses by and also take advantage of dislocations that arise in the credit markets both in Europe and the US resulting from impending corporate events such as mergers, acquisitions or corporate reorganizations.