| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| - | 0% | 0% |
Livello Capital operates a distressed credit strategy focused on complex restructuring situations and idiosyncratic risks. In October 2023, the fund positioned for what they view as late cycle market conditions, with Treasury yields reaching 5% and credit spreads widening significantly. Default activity reached a three-year high, with year-to-date defaults of $75.6bn ranking as the fourth largest annual total on record. The fund is actively invested in distressed names like Rite Aid and WeWork, seeking opportunities where bankruptcy processes can improve profitability through lease rejections and restructuring tools. Key risks include the inverted yield curve signaling recession in early 2024, geopolitical tensions, and deteriorating credit quality with loan recoveries underperforming historical averages. The team is reducing gross and net exposures while focusing on names less sensitive to economic cycles. They are exploring themes including commercial real estate opportunities and regional bank impacts, positioning for what they believe could be significant value creation in distressed situations.
Focus on distressed credit opportunities and complex restructuring situations in a late cycle environment where defaults are increasing and traditional credit metrics are deteriorating.
The fund expects a recession in the first or second quarter of next year based on yield curve inversion signals. They are encouraged by the uptick in defaults and continue to seek uncorrelated idiosyncratic risks in complex situations. The team believes this is arguably the best their strategy has ever looked.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Nov 22 2023 | 2023 Q3 | CINE.L, CYH, RAD, VST | Bankruptcy, credit, Defaults, distressed, high yield, rates, Recession | - | Livello Capital targets distressed credit opportunities in a deteriorating credit environment. With defaults at three-year highs and yield curve inversion signaling recession, the fund focuses on complex restructuring situations like Rite Aid and WeWork where bankruptcy processes can unlock value through operational improvements and cost reductions. |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2023 Q3 |
Credit StressDefault activity continues to pick up with October seeing the greatest number of defaults in three years. Year-to-date default activity of $75.6bn already ranks as the fourth largest annual total on record. The combined par amount outstanding of distressed bonds and leveraged loans rose by $29.6bn to finish at $214.5bn. |
Defaults Distressed High Yield Leveraged Loans Recovery Rates |
RatesNominal and real 10-year yields have moved a remarkable 109 bps and 87 bps higher since June 30, 2023. The 10-year US Treasury briefly breached 5% to finish October at 4.93%. The yield curve inversion has been an accurate recession predictor for more than half a century. |
Treasury Yields Yield Curve Inversion Fed Policy Interest Rates | |
Commercial Real EstateThe fund is mulling opportunities in commercial real estate and the related impacts on regional bank balance sheets as part of their thematic analysis for potential late cycle opportunities. |
CRE Regional Banks Real Estate Banking Credit Risk |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| No Elevator Pitches found | ||||||||||
| TICKER | COMMENTARY |
|---|---|
| RAD | We are active in Rite Aid and WeWork and have been involved in Audacy previously. We continue to seek out uncorrelated idiosyncratic risks in complex situations such as Rite Aid and a new one for us in WeWork. We believe that late cycle market activity warrants a greater focus on names that have been left for dead where the bankruptcy process can dramatically improve profitability through lease rejections and the use of other tools in the restructuring tool kit. |
| VST | The top 3 winners for the month included Rite Aid Corp, Vistra Energy, and FTX Trading Ltd. |
| CYH | The bottom 3 losers included Community Health Systems, Inc., Cineworld Group plc, and SVB Financial Group. |
| Ticker | Put/Call | Amount Bought | Shares Bought | % Change | Weight % |
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| Ticker | Put/Call | Amount Sold | Shares Sold | % Change | Weight % | Status |
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| Industry | Prev Quarter % | Current Quarter % | Change |
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| No industry data available | |||
