Wellington Weekly
Wednesday Market Note (Incl. An ECM Update)
April 23, 2025
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WE ARE LIVE.
Qualified Canadian Readers Only.
What did I miss?
At time of the last published Wellington Weekly (February 4th), the S&P 500 closed at 6,061, the NASDAQ closed at 19,692 and the TSX closed at 25,279. The US 10-year hovered at 4.5% with high yield spreads at 271 bps. Gold was at $2,840/oz. The moment I stopped writing, the S&P and NASDAQ fell through the floor, bottoming out at ~17%, treasuries caught a bid pulling yields lower, credit spreads widened 130 bps and gold became the best thing sinceā¦the discovery of gold.
To say there is a correlation between my publishing and the performance of global markets would be an absurd claim. But let me roll back the clock 4-years. On November 17, 2021 I published the last Wellington Weekly before taking a hiatus. Several weeks later the market peaked and proceeded to sell off 25% (see below - white line on the left). Fast forward 4-years, I returned from my hiatus to publish again. Several weeks later the market proceeded to sell off 17% (see below - purple line on the right).
There are two take-aways here. 1) I am back, which is a risk-on, buy the market sign; and 2) yes, I have Bloomberg.
Enough about me. Letās talk markets.
No need to regurgitate what has happened over the past 3-weeks since āliberation dayā. From the bankruptcy filing of Hudson Bay, to the basis trade blow-up, to the rally in gold, to the sell off in copper, to the unwind of Bitcoin trades, to the bust of converts. The only thing that has been liberated are the unrealized gains from my portfolio. They have join my unrealized losses in an effort to make me queasy. Do I lose sleep over the large levered losses in my portfolio, no. Unlike the broader risk-off sentiment across markets, although I tend to be more of a pragmatic value investor, I see the silver lining. So what is that silver lining exactly? The large unrealized losses seen by private equity and credit funds across the globe. I will keep this high level, but share a theme.
To set the stage, Birchcliffās leveraged buyout of Rexall in late 2024. The deal was completed with 100% debt. No equity by Birchliff. A deal that works in a bull market - but may test the limits of the floating-rate credit agreement in an inflationary, GDP-contracting, tariffed environment. This is where we were in the market. When corporate high yield spreads are at all time tights (270 bps) - levered transactions can be completed.
Moving on, Blackstone, Apollo, Carlyle and KKR are down -27%, -24%, -27%, -28%, respectively, while Houlihan Lokey (a barometer for restructuring) is down -9%. These are some of the largest private equity firms in the world, with the most dry powder and flexibility to transact and withstand volatile market conditions. They have sold off like a recession wave is expected to hit their portfolio companiesā earnings. If we move down the food chain, and relocate back to Toronto, we notice a theme of struggle:
CPP selling a portfolio of 25 PE funds for $1.2 Bn
The BDC placed $450 MM in its growth equity fund to support sluggish deal activity
KingSett Capital discloses it has $1.2 Bn tied-up in receivership proceedings
TorQuestās portfolio company, Joriki, filed for CCAA
This theme is only beginning. I suspect there will be a lot more news to hit the tape as the stall of global trade begins to ripple through corporate earnings over the next several months.
This weekās Wellington Weekly will be a bit unique on the back half. Rather than talking through the highlighted equity deals that have hit the tape, because there have been so many since my last note, I will ramble them off. You the reader should be able to gather the theme. To start, I will guide that the price of gold has reached an all time high exceeding $3,300/oz. Now for the deals:
Abitibi Metals
Allied Gold
Arras Minerals
Cartier Resources
Eloro Resources
Endeavour Silver
Freegold Ventures
GoGold Resources
IDEX Metals
Liberty Gold
Maritime Resources
NeXGold Mining
Probe Gold
Silver Tiger Metals
I think you get the idea, but to drive the point home. If I dropped a shell company on the floor with the word āgoldā in the name, a grifting Canadian banker will be there to pick it up.
Cheers,
G.G.