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Bloomberg


The Credit Edge reviews the top credit news of the week and looks at the week ahead, with in-depth research of the most important corporate sectors, trends and themes. Analysis of specific corporate bonds and credit default swaps is backed by Bloomberg Intelligence's robust data sets and indexes.


The Credit Edge by Bloomberg Intelligence

More highly indebted companies will slip into distress as the US economy slows and earnings suffer, according to Aegon Asset Management. “I am bracing for a little more trouble ahead,” Jim Schaeffer, the $380 billion manager’s global head of leveraged finance, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Julie Hung in the latest Credit Edge podcast. “We’re starting to see more and more companies just hitting a wall,” he adds. They also discuss the third-quarter earnings outlook, opportunities in structured finance, how to invest in the debt of beer and food companies, as well as private credit hazards.

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Aegon Is Worried About Junk-Debt Blowups

Collateralized loan obligations, particularly those backed by middle-market borrowers, are a growing opportunity for investors, according to Crescent Capital Group. “You have to work really hard to blow those structures up,” said John Fekete, the company’s head of tradeable credit, speaking of CLOs generally. Middle-market deals will make up a “larger and larger percentage of CLO issuance,” he tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Jody Lurie in the latest episode of the Credit Edge podcast. We also discuss leveraged loan relative value, the outlook for US consumers and casinos, tariff damage and the impact of liability management exercises.

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CLOs Are Tough to Blow Up, Crescent Says

There’s opportunity in collateralized loan obligations, according to BlackRock, the world’s largest money manager. “CLO tranches are probably one of the best relative value picks within the credit markets,” James Turner, the firm’s co-head of European fundamental fixed income investment, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Tim Riminton in the latest Credit Edge podcast. “You are getting a very good spread and deal pickup there,” he adds. They also discuss opportunities in the auto, health care and defense sectors, how to play chemicals industry debt and the outlook for buyouts, defaults and recoveries in leveraged finance.

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BlackRock Says CLOs Are Among Best Relative Value Picks in Credit

Razor-thin debt spreads underpin the global investor push into private markets, which can pay significantly more, according to Blackstone. “We see excess spread in private credit,” Michael Zawadzki, chief investment officer of Blackstone Credit & Insurance, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s David Havens in the latest Credit Edge podcast. “That’s a really attractive thing for our clients around the world,” he adds, marking the premium at 150-200 bps over both traded high-yield and investment-grade debt. The three also discuss the rise of foreign insurers, pension funds and sovereign wealth in private credit, as well as the outlook for data-center finance, leveraged buyouts and default risks.

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Blackstone Says Private Credit Pays a Lot Better Than Liquid Debt Markets

Distressed debt exchanges in the form of liability-management exercises are set to take off in Europe, according to Gibson Dunn, the US-based law firm. “You’re getting the same lawyers and bankers hired in Europe for deals that they do here — it’s not surprising that they would potentially roll out a playbook that’s worked,” Scott Greenberg, the firm’s global chair of business restructuring and reorganization, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Stephen Flynn in the latest Credit Edge podcast. “It’s a natural progression to take that expertise and bring it to your clients overseas,” says Greenberg, who notes elevated levels of distress in France. We also discuss the likelihood of an imminent US LME revival, the bankruptcy outlook and communications sector stress.

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US Law Firm Gibson Dunn Is Chasing a Big Distressed Debt Opportunity in Europe

Traded corporate debt is much more attractive than private credit, according to RBC BlueBay Asset Management. “Public credit is far superior,” Tom Moulds, senior portfolio manager for investment-grade fixed income at the $534 billion firm, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Tolu Alamutu in the latest Credit Edge podcast. “There’ll probably be a point where you do see losses and people get very concerned,” says Moulds, referring to private debt, which he doesn’t invest in. “If we did slip into a period where growth looked weaker, then I think it would be a problem,” he adds. The three also discuss impact investing, defense sector opportunities, financial debt valuations, real estate stress and European sovereign risk.

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RBC BlueBay Says Public Credit is ‘Far Superior’ to Private Debt

Leveraged buyouts are poised for a revival, albeit less aggressively structured than in the last wave, according to Moody’s Ratings. “Ultimately everyone will need to adjust to the new environment and you will see deal flow come back,” Christina Padgett, the firm’s head of leveraged finance and private credit research, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Jean-Yves Coupin in the latest episode of the Credit Edge podcast. “There’s too much capital that needs to be put to work,” says Padgett, noting potential for LBOs in the technology, health care and services sectors. We also discuss the rise of distressed debt exchanges, leveraged loan risk, the impact of tariffs on weak borrowers and why default rates should fall next year.
 
 

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Moody’s Expects LBOs to Make a Comeback

Collateralized loan obligation equity stands to gain as much as 15% this year, according to Tetragon Credit Partners. “It’s teens returns, high current cash flows and diversification,” said Dagmara Michalczuk, co-chief investment officer at the firm, which specializes in the riskiest part of the CLO market. “We are in vanilla corporate America, just using a little bit of leverage in financial engineering to generate those returns,” she tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Mike Campellone in the latest Credit Edge podcast. Michalczuk and Campellone also discuss the risk of loss from liability-management exercises, private debt valuations, loan defaults and relative value in European CLOs.

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Tetragon Sees Midteens Gain in Riskiest CLO Tranche

More companies will fail to repay debt as funding costs stay high, according to Mudrick Capital Management. “What we’re getting is just elevated defaults every year, we think for the next five to seven years,” Jason Mudrick, the distressed debt fund’s founder and chief investment officer, tells Bloomberg News’ Irene Garcia Perez and Bloomberg Intelligence’s Mike Holland in the latest Credit Edge podcast. “The catalyst today is not an economic downturn — it’s this normalization of interest rates,” says Mudrick. They also discuss the Tropicana, Yellow Pages and Shutterfly debt restructurings, as well as flying taxi maker Vertical Aerospace.

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Mudrick Sees Seven-Year Default Wave as Rates Stay Up

Fox Legal Training sees debt documentation risks rising as too much cash chases a limited number of high-yield deals. “Provisions these days are drafted in a way that they are very much departures from reality,” Sabrina Fox, the company’s founder, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Aidan Cheslin in this episode of the Credit Edge podcast. “That creates an alternate universe, like La La Land, where the numbers don’t match the performance of the business,” says Fox, who specializes in covenant analysis. Fox and Cheslin also discuss lack of transparency in high-yield debt deals, lessons learned from the Altice debt restructuring, how aggressive liability management spreads to Europe from the US and where to spot trouble in prospectuses.

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Junk Companies Are in Debt Covenant 'La La Land,' Says Fox Legal

The best credit opportunity lies in middle-market collateralized loan obligation equity, according to Carlyle. “It is a newer market and not everyone’s investing and chasing that asset class,” said Lauren Basmadjian, the firm’s global head of liquid credit. “We’re seeing mid-to-high teens IRRs,” Basmadjian tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Mike Campellone in the latest Credit Edge podcast. That compares to 12%-13% internal rates of return from CLOs backed by broadly syndicated loans, she adds. Basmadjian and Campellone also discuss growing risk from liability management exercises, private/public debt convergence, default rates, M&A and European leveraged loan market opportunities.

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Carlyle Flags ‘High Teens’ Middle-Market CLO Gains

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