Generali Joins German Insurers Investing in High-Yield Loans

Apr 24, 2014 8:29 am ET

(Updates with loan issuance in seventh paragraph.)

April 24 (Bloomberg) -- The German unit of Assicurazioni Generali SpA, Italy’s biggest insurer, is planning to begin investing in high-yielding U.S. loans as it seeks to boost returns held down by low interest rates.

Generali Deutschland Holding AG will allocate as much as 400 million euros ($553 million) to leveraged loans, according to Fabrizio Vitiello, Generali’s Milan-based head of asset management and alternative fixed income. The Cologne-based division also wants to invest as much as 200 million euros in infrastructure loans and the same amount to small and medium- sized enterprises in Germany.

“We are currently in the process of building up a number of alternative fixed income investments such as senior secured loans, loans to small and medium-sized corporations as well as infrastructure and leveraged loans,” Vitiello said in a telephone interview. “We invest predominantly via specialized funds, positioning ourselves on the more senior part of the capital structure.”

Generali is joining German insurers including Gothaer Group and Versicherungskammer Bayern buying into leveraged loans to boost yields and diversify assets. The Italian firm’s life division reported a 3.8 percent return on 282 billion euros of investments in 2013 from 4.1 percent the year before.

Generali wants to team up with German banks to help it invest in loans, according to Vitiello. “Getting bank partners is key for an investment in corporate loans,” he said.

The insurer has selected BNP Paribas SA to work with its French unit on a 300 million-euro fund focused on company debt.

Record Issuance

The U.S. junk-loan market has seen record issuance this year with at least $85 billion raised to finance acquisitions, data compiled by Bloomberg show. With defaults by borrowers approaching record lows, buyout firms are also taking advantage of the Federal Reserve’s easy-money policies to extract payouts by piling more debt onto the companies they own.

Versicherungskammer Bayern, with 42.5 billion euros in investments, and Gothaer Group, which oversees 25 billion euros, have been buying into loans for several years.

“We currently observe a massively growing interest in senior secured loans,” said Klaus-Michael Menz, the Cologne- based head of credit investments at Gothaer Asset Management AG, the insurer’s asset management unit. “Currently, the market is almost priced to perfection and we have become very cautious as it could quickly turn and lose its attractiveness.”

Bank Partner

Gothaer achieved a return of about 13 percent on its senior secured loans in the past two years, Menz said. The insurer is working with IKB Deutsche Industriebank AG, the Dusseldorf-based lender, to invest as much as 150 million euros in debt to medium-sized German companies.

Bayerische Versorgungskammer, Germany’s biggest public pension fund, is also planning to start investing in loans, Munich-based spokeswoman Kathrin Reus said. It wants to allocate as much as 600 million euros to syndicated facilities starting next month, according to Reus.

Leveraged loans are rated below BBB- by Standard & Poor’s and less than Baa3 at Moody’s Investors Service, the lowest investment-grade levels.