Risk-first loan strategy finds strength in a dislocated market

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Invico Capital Corporation is capitalizing on secondary-market dislocations with a disciplined approach that blends liquidity, income, and capital appreciation, giving investors access to a pure play strategy in first-lien corporate credit

AMID RISING volatility and declining loan prices, Invico Capital Corporation is leaning into a structural credit dislocation that many managers aren’t positioned to access. Invico Credit Opportunities LP (“the Fund”), a private limited partnership open to accredited investors, is structured to preserve capital and generate consistent income by investing primarily in senior secured loans to North American companies. But while many credit funds are stuck waiting for direct lending deal flow to materialize, Invico is actively buying performing loans in the secondary market, often at discounts that provide both contractual income and embedded capital upside − typically in the B and BB rated category. Unlike direct lenders that must originate transactions and

Invico Capital Corporation is an award-winning Canadian investment fund management firm providing alternative investing and financing solutions in Canada and the US. With over $3.7 billion in assets under management, the firm offers private debt, syndicated credit, secondaries, and energy financing solutions. Invico supports corporations in pursuing strategic acquisitions, financing capital expenditures and growth programs, and managing working capital needs. As a recognized leader in alternative investments, Invico is committed to delivering innovative capital solutions and long-term value for both investors and businesses.

US leveraged loan index, bid price diversification

100%

“When we look at yield per unit of risk, we’re not trying to max out the numerator in this macroeconomic backdrop. We’re managing the denominator. That’s what matters in a risk-off and low-growth environment”

Tyler Gramatovich, Invico Capital Corporation

negotiate bespoke terms, Invico sources most of its portfolio from a vast pool of seasoned loans, allowing it to capitalize on market-wide repricing events. These aren’t distressed assets, and the opportunity to pick up discounted, performing credits has finally materialized as loan funds experience outflows. At the end of April, nearly the entire US leveraged loan market was priced below par − an abrupt reversal from late 2024, when risk premiums were compressed and repricing activity was the norm. “We were very disciplined about not putting capital to work in the fourth quarter of last year and the early part of 2025,” says Tyler Gramatovich, portfolio manager and vice president of investments at Invico. “Now that almost everything is trading below 100 cents on the dollar, we’re able to source quality loans at meaningful discounts − assuming the yield is compensating us for the go-forward risk of the investment.”

And because Invico operates in an often overlooked part of the syndicated market − companies smaller than benchmark names but well above private credit’s illiquid terrain − it avoids both the crowding of public credit and the structural constraints of private origination. That middle-ground strategy, paired with a risk-led underwriting process, is what Gramatovich believes gives the Fund its edge in today’s market. After a tight credit environment in late 2024, where Invico held back on deployments, the landscape of the second quarter of 2025 has flipped, with nearly the entire US leveraged loan market trading below 100. That dislocation, driven more by technical outflows and tariff-related volatility than by fundamental credit deterioration, has created a rare window for active managers with dry powder and a disciplined underwriting approach. “We see this repricing in April as needed and view economic growth going forward as stagnant, at

best. Despite trade deals that are likely to be reached, growth is worse off than it was before. This low-to-no-growth world is perfect for first-lien lenders as we don’t need growth for our investments to play out, and companies tend to focus on balance sheet preservation. Combine that with prices of loans weakening and we are very excited about the hunting ground in front of us.”

At the core of the Fund’s investment approach is a reversal of the way many credit managers price risk. “A lot of credit funds and general credit allocators are focused on hitting a specific yield or managing to a relative value model that relies too heavily on rating agencies,” says Gramatovich. “We start by analyzing the risk regardless of rating and then decide what return would justify taking that on. It’s not about managing to a target yield number − it’s about getting paid appropriately in the market environment we’re in.” Indeed, security selection shows a clear divergence, with higher-risk names coming under increasing pressure as of late. Invico’s portfolio, while industry agnostic, is deliberately focused on North American companies with less complex supply chains that are less exposed to tariff sensitivity. “We avoid loans that require growth to survive,” Gramatovich says. “Right now, that means being cautious on sectors like consumer discretionary and avoiding highly levered capital structures. But there are plenty of resilient first-lien loans where you’re still getting paid to take measured risk.” The process begins with underwriting. Invico’s credit team is responsible for maintaining detailed earnings models, monitoring industry trends, and regularly reassessing risk metrics. This equity-style coverage model − rare in first-lien credit − enables a more dynamic approach to portfolio construction and trading decisions. “We have a very detailed monitoring process,” says Gramatovich. “Projections are updated quarterly, and the original investment thesis is constantly monitored in addition to daily macroeconomic and company-specific news. That drives our buy, hold, and sell decisions. I don’t think that level of monitoring is typical for relative value credit managers.”

Notably, the loan asset class has limited exposure to energy or real estate − two sectors that dominate many domestic investor portfolios. That gives it an added diversification benefit for allocators seeking to balance risk across geographies and sectors. The Fund’s investment universe is further defined by a focus on B and BB rated credits − names that sit in the “core” of the non-investment grade market but that are often mispriced due to size or liquidity constraints. The Fund targets loans that may be too small for indexes or too public for private credit funds, creating a distinct profile relative to traditional fixed income or direct lending allocations.

The portfolio is invested to assume a material slowdown in growth − even at the expense of a slightly lower yield. “When we look at yield per unit of risk, we’re not trying to max out the numerator in this macroeconomic backdrop,” Gramatovich says. “We’re managing the denominator. That’s what matters in a risk-off and low-growth environment.” And because loans are acquired below par, the strategy captures not just income but potential capital appreciation, if prices normalize. “You’re earning contractual interest and positioned for a rebound,” he says. “That rebound may or may not take time to materialize, but we are getting paid every day from these holdings in a low-volatility asset class. That’s the kind of asymmetric return we want.” Should the market correct further, Invico expects to lean into deeper-value credits. But for now, its edge is staying liquid and staying selective at the top of the capital structure. This disciplined focus has enabled the Fund to deliver attractive high single-digit to low double-digit yields – well above the loan index and historical norms – without compromising credit quality. “We’re not day-trading,” Gramatovich says. “We are being highly selective in names we want to own through this next economic cycle where there is a very clear path to a refinancing — which is typically our investment exit.”

Clarifying complex ideas theme with light bulb

A strategy built on risk discipline, not yield targets

Positioned for a macroeconomic slowdown while maintaining a strong monthly yield

Published May 20, 2025

“We see this repricing as needed and would view this as the new normal, so we are very excited about the hunting ground in front of us”

Tyler Gramatovich, Invico Capital Corporation

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99 - 99.9

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Less than 90

Source: PitchBook | LCD; Morningstar LSTA US Leveraged Loan Index • Data through April 30, 2025

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Feb 2024

Weighted average bid of US leveraged loans

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“There’s a size bias in rating agency models,” Gramatovich explains. “We can find issuers that are penalized in ratings just because of their scale, even if the fundamentals are solid. That creates an inefficiency we can exploit − and there’s less competition in that space.”

The Fund’s approach is particularly well suited to current conditions. Following the announcement of broad US trade tariffs in early April, credit markets experienced one of the sharpest repricing episodes in years. Importantly, this repricing has occurred across the entire spectrum − not just in distressed or cyclical sectors. That breadth of discounting reflects a rare structural opening: loans trading at or above par have nearly vanished from the market, even among high-quality borrowers. “We are in a credit picker’s market,” Gramatovich states. For Invico, the selloff created exactly the type of environment the strategy is designed for. “This kind of dislocation is where our process really shows its strength,” Gramatovich says. “These aren’t fundamentally broken loans. They’re being sold for technical reasons − fund outflows, macro headlines, rate volatility. And we will selectively begin to add positions to continue to diversify the portfolio.” Because Invico operates in the secondary market, it can scale quickly without relying on deal flow. Unlike private credit strategies that may face origination delays or size limitations, Invico’s investable universe remains vast. “We’re not subject to origination deal flow problems that much of the direct lending market faces,” Gramatovich says. “The market has thousands of issued loans, and we can deploy in million-dollar increments without being disruptive to execution.”

Importantly, the recent repricing hasn’t been isolated to low-rated or cyclical names. Even high-quality credits are trading at discounts, meaning investors don’t have to reach down the risk spectrum to generate attractive yields. As private credit transactions grow in size and complexity, Gramatovich believes that the line between public and private credit markets will continue to blur. More billion-dollar private credit loans are being issued each quarter, and Invico sees many of them eventually entering the secondary market, where trading desks will facilitate matching institutional buyers and sellers of these loans. “We already have the trading infrastructure set up to operate in that space,” Gramatovich notes. “Trading, settlement, monitoring − it’s all in place. I think the over-the-counter traded private credit market will look very similar to what the syndicated loan market was 10 years ago.” The Fund’s focus remains squarely on first-lien performing loans, and the Fund’s structure has been designed to evolve with the evolution of credit markets. However, the team’s emphasis remains the same: disciplined underwriting always comes first. “We underwrite to downside scenarios. And that’s what keeps the portfolio stable when broader market volatility spikes. Our holdings are marked to market daily, and the underwriting process aides in controlling volatility in an already low-volatility asset class.”

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