Compelling opportunities in CLOs, high-yield bonds – Bain Capital’s John Wright

Recent volatility has opened up fresh opportunities in credit, says John Wright, global head of credit at Bain Capital, in the latest “Credit Exchange” podcast. Wright spoke with Lisa Lee, the managing editor at Creditflux, on his expectations for spread direction – wider, he believes – and compelling opportunities in both public and private debt.

“Uncertainty begets wider spreads, and wider spreads beget more yield and more opportunity,” says Wright, with volatility being good for credit markets and for investing. While difficult to gauge the short-term, Wright believes that, over long periods of time, allocating to credit and holding through market volatility outperforms being in and out of the market.

Wright is seeing opportunities in high-yield bonds and CLOs. Bain, which has $53 billion in credit assets under management, is “pretty excited” about CLO debt, as spreads are widening and expected to continue doing so. There are compelling opportunities on the CLO equity side, he believes. Bain is also getting involved with European CLO junior debt, since it has moved a little more quickly than the US equivalent.

On M&A, “the pendulum has swung back the other way” given from heightened expectations after Trump’s election, Wright notes. But he still expects to see an uptick in M&A activity relative to the last two years, and a resumption of normal M&A activity. That will lead to loan origination.

Wright says corporate default activities are at relatively elevated levels. He advises looking beyond the headline default rate that shows historically low levels. The true default rate when accounting for such things as LME (liability management exercise) transactions is higher: “we're closer to three or four percent, which is a reasonably elevated level as it relates to default activity,” he says.