Market Dynamics and Credit Landscape

The recent shift in interest rates marked a significant change in the corporate credit market, revealing a bifurcated landscape where strong borrowers contrast sharply with those struggling financially. While many firms are positioned to refinance their debts comfortably, a notable portion faces serious challenges, particularly due to a substantial rise in debt since the financial crisis, with leveraged loans and high-yield bonds reaching over $13 trillion. The weakening financial health of some borrowers has led to an increased likelihood of distress, which has raised concerns about the sheer volume of distressed credit despite low historical default rates. The loosening of credit documentation terms since 2020 has complicated creditor interactions, highlighting the need for investors to possess the necessary legal expertise to navigate this intricate environment effectively.