Season 3, Episode 2
On this episode of LFI Levered Lines, host Steve Miller speaks with Joe Rotondo, Senior Portfolio Manager at Mid-Ocean Credit Partners, about the firm's defensive investment philosophy driving strong performance across their $5 billion CLO platform built over three and a half years. The conversation explores the anticipated resurgence of LBO and M&A-driven loan issuance, with the forward calendar reaching $46 billion—the highest in three years—supported by three converging factors: declining rates reducing borrowing costs, stable macro conditions, and sponsors facing pressure to monetize portfolio companies and return capital to LPs. Joe discusses the robust CLO issuance outlook for 2026, with Triple-A spreads tightening into the very high teens and very low 120s range, alongside significant opportunities for refis and resets as deals from late 2023 and 2024 roll off their two-year non-call periods—potentially tightening liability spreads by 50 basis points with benefits flowing directly to equity investors.
The discussion addresses growing market bifurcation, with 52% of loans trading above par as managers seek "sleep at night" names while distressed credits face heightened volatility from both credit risk and potential liability management exercises. Joe explains how LMEs over the past 5-6 years have made credit selection and deep-dive covenant analysis more critical than ever. The conversation also examines AI's dual impact on the loan market—distinguishing between perceived and real disintermediation risk—while noting the positive potential of AI adoption to improve operational efficiency for borrowers.
