Covalent Partners seeks to exploit inefficiencies in leveraged credit and special situations
Leveraged Credit
Total return focus in publicly traded high-yield bonds and leveraged loans with a tilt toward B and CCC rated credits, smaller and less-trafficked issuers, and stressed or distressed situations.
Balance Sheet Transformation
Spin-offs, asset sales, acquisitions, and joint ventures. Overlooked sum-of-the-parts with tangible paths to realization. Seek aligned management or activist shareholders.
Leveraged Equities
Equities of companies with junk-rated debt are often discarded due to "excessive leverage." Covalent seeks low valuations, improving fundamentals, adequate liquidity, and a path to deleveraging.
Intra-Capital Structure
Identify the most asymmetric components within a capital structure to go long and/or short (i.e. long secured bonds and short "out-of-the-money" equity, or vice versa). Includes convertible bond arbitrage.
Excessive Discount
Temporary company-specific or industry-wide headwinds create a historically wide discount to fair value. Company typically faces a well-known negative narrative and is broadly disliked by the investment community.