First Eagle Investment Management Launches Alternative Credit Interval Fund
NEW YORK – December 2, 2020 — First Eagle Investment Management, LLC (“First Eagle”) today announced the launch of the First Eagle Credit Opportunities Fund (A-Share Class: FECAX, I-Share Class: FECRX). A multi-sector portfolio investing primarily in private and public credit assets—including direct lending, middle-market “club” loans, syndicated bank loans and high yield bonds—the Fund seeks to provide attractive current income with a focus on delivering strong risk-adjusted returns over the long term. Given the historically low correlation between alternative credit and traditional fixed income investments, the Fund also may serve as a diversifying complement to investors’ other portfolio holdings.
As an interval fund registered under the Investment Company Act of 1940, the Credit Opportunities Fund provides investors with quarterly liquidity, giving the portfolio managers greater flexibility to invest in alternative income-generating assets like private credit and syndicated loans that historically have offered higher yields relative to traditional securities in exchange for reduced liquidity. At the same time, the Fund is offered for sale continuously at NAV, like an open-end mutual fund, and is available to a broad audience with no requirements that investors be accredited or qualified.
“Alternative credit assets represent an attractive solution for investors seeking to generate meaningful current income in today’s environment characterized by low yields and higher risks among traditional fixed income securities,” said Robert Bruno, Head of Retail Distribution and President of FEF Distributors, LLC. “The interval fund structure enables us to broadly offer retail investors access to the credit capabilities of First Eagle Alternative Credit, an institutional platform with decades of experience across multiple market cycles.”
“With the Credit Opportunities Fund we’re aiming to provide investors with an attractive, consistent income stream through exposure to parts of the US credit market typically less accessible to the retail channel,” said Christopher J. Flynn, President of First Eagle Alternative Credit. “By focusing on senior-secured assets and investing across multiple sectors and risk profiles, we look to generate this current income while mitigating downside risk compared to other higher-yielding fixed income strategies.”
ABOUT FIRST EAGLE INVESTMENT MANAGEMENT
First Eagle Investment Management is an independent, privately owned investment management firm headquartered in New York with approximately $101 billion in assets under management as of September 30, 2020. Dedicated to providing prudent stewardship of client assets, the firm focuses on active, fundamental and benchmark-agnostic investing, with a strong emphasis on downside risk mitigation. Over a long history dating back to 1864, First Eagle has helped its clients avoid permanent impairment of capital and earn attractive returns through widely varied economic cycles—a tradition that is central to its mission today. The firm’s investment capabilities include equity, fixed income, alternative credit and multi-asset strategies. For more information on First Eagle, please visit www.feim.com. For information on First Eagle Alternative Credit, please visit www.feac.com.
Summary of Principal Risks of the Fund
The Fund is a newly organized, non-diversified closed-end investment company. There can be no assurance that the Fund will achieve its investment objective.
An investment in the First Eagle Credit Opportunities Fund (the “Fund”) involves a number of significant risks. Below is a summary of some of the principal risks of investing in the Fund. Before you invest, you should be aware of various risks, including those described below. For a more complete discussion of the risks of investing in the Fund, see the Fund’s prospectus under the heading, “Principal Risks of the Fund.”
Investment Risk — An investment in the Fund is subject to investment risk, including the possible loss of the entire principal amount invested and should be considered speculative. An investment in the Fund represents an indirect investment in the investments and other financial assets owned by the Fund. The value of the Fund’s investments will generally fluctuate with, among other things, changes in prevailing interest rates, federal tax rates, counterparty risk, general economic conditions, the condition of certain financial markets, developments or trends in any particular industry and the financial condition of the issuer. Lower-quality debt securities involve greater risk of default or price changes and their value can fluctuate, especially during periods of increased market volatility, economic recessions or periods of high interest rates. The Fund anticipates using leverage, which would magnify the Fund’s investment, market and certain other risks.
Market Risk — The Fund is subject to market risk. Market risk includes unexpected directional price movements, deviations from historical pricing relationships, changes in the regulatory environment, changes in market volatility, panicked or forced selling of assets and contraction of available credit or other financing sources. The success of the Fund’s activities may be affected by general economic and market conditions, such as interest rates, availability of credit, inflation rates, economic uncertainty, changes in laws and national and international political circumstances.
Issuer Risk — The value of securities may decline for a number of reasons that directly relate to a security’s issuer, such as its financial strength, management performance, financial leverage and reduced demand for the issuer’s goods and services, as well as the historical and prospective earnings of the issuer and the value of its assets. A change in the financial condition of a single issuer may affect securities markets as a whole. These risks can apply to the shares issued by the Fund and to the issuers of securities and other instruments in which the Fund invests.
Credit Risk and Interest Rate Risk — Investment in private and middle market companies is highly speculative and involves a high degree of risk of credit loss, and therefore the Fund’s securities may not be suitable for someone with a low tolerance for risk. These risks are likely to increase during an economic recession. Additionally, issuers of the syndicated loans and other types of credit instruments in which the Fund may invest may default on their obligations to pay principal or interest when due. This nonpayment would result in a reduction of income to the Fund, a reduction in the value of such syndicated loans or credit instrument experiencing nonpayment and, potentially, a decrease in the NAV of the Fund. A significant increase in market interest rates could harm the Fund’s ability to attract new portfolio companies and originate new loans and investments. The Fund expects that a majority of its investments in debt will continue to be at floating rates with a floor.
Below Investment Grade Rating Risk — Most of the credit instruments in which the Fund invests, including its investments in syndicated bank loans, middle market “club” loans (senior secured loans in middle market companies funded by an arranged group of lenders that generally does not involve syndication), direct lending (consisting of first lien loans, including unitranche loans), asset-based loans, and high-yield bonds, will be rated below investment grade by rating agencies or would be rated below investment grade if they were rated. Below investment grade investments are often referred to as “high-yield” or “junk” securities. While generally providing greater income and opportunity for gain, below investment grade securities or comparable unrated securities may be subject to greater risks than securities or instruments that have higher credit ratings, including a higher risk of default. Because unrated securities may not have an active trading market or may be difficult to value, the Fund might have difficulty selling them promptly at an acceptable price.
Bank Loan Risk — These investments potentially expose the Fund to the credit risk of the underlying borrower, and in certain cases, of the financial institution. The Fund’s ability to receive payments in connection with the loan depends primarily on the financial condition of the borrower. Even investments in secured loans present risk, as there is no assurance that the collateral securing the loan will be sufficient to satisfy the loan obligation. The market for bank loans may be illiquid and the Fund may have difficulty selling them. In addition, bank loans often have contractual restrictions on resale, which can delay the sale and adversely impact the sale price.
Distressed Debt, Litigation, Bankruptcy and Other Proceedings Risk — The Fund may invest in debt securities and other obligations of companies that are experiencing significant financial or business distress, including companies involved in bankruptcy or other reorganization and liquidation proceedings. Although such investments may result in significant returns for the Fund, they involve a substantial degree of risk. The level of analytical sophistication, both financial and legal, necessary for successful investment in distressed assets is unusually high. There is no assurance that First Eagle Alternative Credit will correctly evaluate the value of the assets collateralizing the Fund’s investments or the prospects for a successful reorganization or similar action in respect of any company. Investments in distressed securities involve a material risk that the issuer will default on the obligations or enter bankruptcy. In an event of default or bankruptcy, the obligations may be repaid only after lengthy workout proceedings, may result in only partial payment of the obligations, and, in some cases, there is a risk of loss by the Fund of its entire investment in such securities. Certain fixed-income instruments invested in by the Fund could be subject to U.S. federal, state or non-U.S. bankruptcy laws or fraudulent transfer or conveyance laws, if such securities were issued with the intent of hindering, delaying or defrauding creditors or, in certain circumstances, if the issuer receives less than reasonably equivalent value or fair consideration in return for issuing such securities. The Fund may not be able to pay distributions or may have to reduce distribution levels if the income and/or dividends the Fund receives from its investments decline. Where the Fund or First Eagle Alternative Credit has representatives on the boards of a portfolio company, such involvement may also prevent the Fund from freely disposing of its debt investments and may subject the Fund to additional liability or result in re-characterization of its debt investments as equity.
Direct Lending and Middle Market “Club” Loan Risk — Generally, little public information exists about these companies, and the Fund is required to rely on the ability of the FEAC’s investment professionals to obtain adequate information to evaluate the potential returns from investing in these companies. If FEAC is unable to uncover all material information about these companies, it may not be able to make a fully informed investment decision, and the Fund may lose money on is investments. Private and middle market companies may have limited financial resources and may be unable to meet their obligations under their debt securities that the Fund holds, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of the Fund realizing any guarantees it may have obtained in connection with its investment. In addition, they typically have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns. Additionally, middle market companies are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on the Fund’s portfolio company and, in turn, on the Fund. Middle market companies also generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position.
Non-Diversification Risk — The Fund is classified as “non-diversified” under the 1940 Act. As a result, it can invest a greater portion of its assets in obligations of a single issuer than a “diversified” fund.