UBS's billionaire clients keen on turnaround opportunities

UBS Group AG's private credit business is seeing increased interest from sophisticated wealth investors looking for opportunities coming out of the crisis.

The O'Connor Capital Solutions unit had the busiest period of its existence in the last seven weeks, focusing on new investing opportunities fuelled by the novel coronavirus-induced market dislocation, according to Baxter Wasson, who co-heads the fund at the Swiss bank.

"We are working on closing our seventh transaction in seven weeks," Mr Wasson told journalists late on Wednesday. "We are providing liquidity to companies, to funds, and also to ultra-high-net-worth individuals and family offices." The transactions and new opportunities range from refinancing existing debt to addressing margin calls, as well as finding investing opportunities. For example, one family office is looking to use a stake in a private company as collateral for liquidity to make investments in stressed and distressed situations in the private markets, Mr Wasson said.

Other wealthy clients are asking for refinancing of margin loans that are close to being called due to the market volatility, he added.

The uncertainty in the global economic outlook and dislocation in the market has resulted in an unprecedented amount of companies drawing on credit lines and seeking means to shore up liquidity as revenues and valuations are hit. That is leading to interesting relative value investing opportunities in today's credit markets.

UBS chief executive officer Sergio Ermotti said at the end of March that "there are not many times in history where credit has been priced so attractively". Some billionaires are joining investors including Oaktree Capital Group and Cerberus Capital Management in the hunt for lending opportunities to companies in dire need of liquidity amid the shutdown.

Through its private credit funds, UBS is working on financing for a middle-market company looking for liquidity as well as funding to acquire less-resilient peers, according to Mr Wasson. It is also working to provide a medical-device companies with 12 to 24 months of liquidity to help them navigate the months ahead. The private-credit business raised US$1 billion in 2017 to provide quick financing to smaller companies in loans of at least US$10 million. It is now looking for new ways to grow its capital base, Mr Wasson said.

UBS O'Connor, which manages around US$5.6 billion, was founded as O'Connor & Associates in 1977 and sold to a UBS predecessor in 1992. A portion of the capital in its funds was raised from UBS wealth-management clients.

Within the portfolio of funds, about 20 per cent to 25 per cent are deals that UBS sources through its own investment bank and wealth-management arms. These are typically loans to wealthy clients or corporates that were not a fit with the bank's own balance sheet. BLOOMBERG