01.12.17

Snapshots is an amused bystander watching the gravity-defying performance of Bitcoin. 

A history of ledgers

The distributed ledger technology behind Bitcoin is certainly very interesting. However, ledgers are not new. According to Wikipedia, the first records of ledgers come from Babylonian stylus and clay slabs dating back to 2600BC. Since then we have had the invention of the double-entry bookkeeping system by Italian merchants in the 1300s, the creation of stock exchanges by Dutch traders in the 1600s and more recently global clearing houses. In summary, we struggle to understand the hype around the price of Bitcoin.

Self-certified EBITDA

We all remember self-certified mortgages. Welcome to the world of self-certified EBITDA, a topic we first mentioned in Snapshots on the 9th of June. Our leveraged finance analysts have been complaining about the aggressive and uncapped use of an “EBITDA add-on” in some recent leveraged loan deals. Recall that add-ons are adjustments that can be made for “anticipated” cost savings and synergies. They drive the opening leverage, ongoing covenants and restricted payments of the company. In summary, they mean potentially more leverage and more cash leakage to the detriment of the lender. This is an area we continue to monitor closely.

Unsecured household debt

According to the UK Council of Mortgage Lenders, the percentage of mortgages in arrears dropped to the lowest level since 1994. As we have previously noted, mortgage lending is now a heavily regulated market and we are comfortable with the assumptions and stress tests involved.

In contrast, defaults on unsecured consumer lending continue to rise according to the BOE surveys and rating agency data. The good news is they are rising from very low levels. However, we continue to question some of the proprietary modelling assumptions being made in this space and remain wary of new regulations testing them.

Asif Godall
Co-Chief Investment Officer