The Credit Edge by Bloomberg Intelligence

RBC Sees Private Credit in Peril as Rates Stay High

Dec 24, 2024

Andrzej Skiba, Head of US Fixed Income at RBC Global Asset Management, dives into the potential challenges facing the private credit market as interest rates remain high. He emphasizes the advantages of public markets, citing better leverage profiles. Skiba, alongside analysts James Crombie and Mike Holland, explores upcoming trends in financial-sector debt, enticing opportunities in technology and media bonds, and strategies to navigate market volatility. They also touch on the implications of excessive leverage and the shifting landscape of high-yield securities.

47:49

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Episode guests

Andrzej Skiba

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Episode notes

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Quick takeaways

RBC warns that prolonged high interest rates could negatively impact the private credit space's resilience and leverage profiles.

There's a cautiously optimistic outlook for high yield, but investors must navigate risks associated with rising defaults and economic pressures.

Deep dives

Market Dynamics and Interest Rates

U.S. markets are experiencing growth with a rally as interest rates decrease, but there are concerns regarding the Federal Reserve's slower-than-expected rate cuts. The tightening of bond spreads indicates high demand for yield, yet the current economic policy environment suggests potential inflationary pressures which could lead to sustained high borrowing costs. Investors are particularly wary of how geopolitical risks and trade relationships, especially with tariffs imposed by the incoming administration, may impact the market outlook. This creates a cautious sentiment as defaults and bankruptcies begin to rise within the sector, indicating that volatility is expected in the near future.

Intro

5min

Strategies for Navigating Market Volatility and Credit Spreads

4min

Navigating High-Yield Bonds and Private Credit

6min

Navigating Complexities in High Yield Bonds

17min

Navigating High Yield Markets for 2025

13min

Shifts in Private Credit Demand and Investment Strategies

4min

A sustained period of elevated interest rates has the potential to cause pain in the fastest-growing part of corporate debt, according to RBC Global Asset Management. “We are concerned about how the direct lending private credit space would deal with a higher-for-longer world,” said Andrzej Skiba, the firm’s head of US fixed income. “You’re much better off in public markets because the leverage profile, the interest coverage ratios are just so much better,” he tells Bloomberg News’ James Crombie and Bloomberg Intelligence senior credit analyst Mike Holland, in the latest Credit Edge podcast. Holland and Skiba also discuss value in financial-sector debt, technology and media bond opportunities, coercive liability management exercises and 2025 bond market returns.

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