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Late Brexit (and CLO) solution is all we need

By Welshcake

Friday, March 29, 2019

The more observant among Creditflux readers may have noticed there is no Welshcake column in this month’s print magazine. Sadly, in a bid to offer more value than ever, yours truly waited until five minutes before copy deadline to submit eight different versions of the text to the editor – only for all of them to be summarily rejected.

Ok, my bad. But you know how it is when one gets caught up in a thing. And who wouldn’t want 600 words on Wales’s scintillating rugby grand slam victory? Or an educational anecdote about a fellow who placed a bet on Scotland to beat England at 31-0 down when the odds were 100 to one – only to miss out on grasping those same odds of it ending up as a draw? [note: England somehow ended up trailing 38-31, only to save the game in the dying seconds.]

It didn’t help that the welshcake@acuris.com inbox took a long time to go through – both for the wealth of requests and my distinctly lacking tech skills. To be fair, most of the feedback so far has been along the same lines: “Who are you?”, “Go on tell us”, “How do we solve Brexit?” and, “Look here what you want for tea, bach?” (thanks mam).

Brexit is an easy one though, isn’t it? Truth be told this was the main spectre hanging over the Welshcake column this month, given Creditflux would appear in people’s hands on the very day the UK was slated to crash out of the European Union without any plan in place. Arguments that this unexpected-but-plausible outcome would not be a great advert for print were soundly beaten away by counterarguments that no-one who works in CLOs gives a fig. Admittedly, even CDS clearing and lifecycle angles no longer quicken the pulse.

But going into deadline day Welshcake’s mind was nonetheless ravaged by combinatorial explosion. An ever-growing raft of indicative votes in the UK parliament on different Brexit ideas, and an ever-fracturing landscape of politicians’ personal ambitions and alliances, presented a multiverse of potential outcomes more fiendish in its complexity than a Jorge Luis Borges short story.

Now, Welshcake is a betting man – especially if it involves betting against England. But there just aren’t any decent odds on any of the paths open to the UK from here. Nothing like the 10/3 slam dunk you could have taken on Donald Trump’s 2016 election when Hillary Clinton wasn’t even campaigning in Ohio, the bellwether of all bellwether states. Or the same odds you’d have gotten on the original Brexit referendum win, when avoiding it came down to whether or not the sun was out on the day of the vote. 

Welshcake is placing no bets here. But I have long had a solution to the central problem regarding the Northern Ireland backstop. And it does involve CLOs. Well, it could do. Moreover, the fact that no-one who has heard this idea thinks it is credible is the surest sign that it is the only valid solution to the impasse.

Claims no legal authority exists with either the independence or weight to arbitrate between the UK and EU over ending the backstop miss something very important. Money is the ultimate arbiter.

We need to raise the stakes on this thing. What if, for every month the backstop is in place, the UK and each of the 27 EU states agree to pay a big wad of money into a shared facility? And what if this money, rather than simply sitting there, could be strategically invested in something high-earning, with repeatable horizons, that is nonetheless a little bit scary? Like equity tranches of an – as yet – unrealised pipeline of European mid-market CLOs…

It would be good for corporate finance, the genesis of a missing market, as well as both terrifying and giddying in its risk/return profile. Most importantly it would incentivise even short-termist government officials to work hard on sorting out the backstop so they could unleash big numbers into their budgets.

Well, it’s better than asking Northern Ireland to hold a referendum… And it doesn’t require Theresa May to resign.

Which is why the Tories haven’t gone with it.

And why you should forget.

Forget.

Did I mention about Wales winning the rugby?

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