The Credit Edge by Bloomberg Intelligence Carlyle Flags ‘High Teens’ Middle-Market CLO Gains
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Feb 27, 2025 Lauren Basmadjian is the Global Head of Liquid Credit at Carlyle, overseeing a vast $192 billion credit platform. In this conversation, she reveals that middle-market CLOs are offering impressive mid-to-high teens IRRs, overshadowing traditional syndicated loans. Basmadjian discusses the risks from liability management exercises, the convergence of private and public debt, and opportunities in the European leveraged loan market. She also emphasizes the rising demand for quality loans and the impact of interest rates on borrower behavior, shedding light on evolving market dynamics.
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Private Credit Growth
- Private credit markets are growing due to high demand for below-investment-grade credit, especially in a floating-rate environment.
- Inflation, while a concern, benefits this sector as companies grow more and floating rates yield higher returns.
Relative Value in Mid-Market CLOs
- While spread compression is occurring in both broadly syndicated loans (BSL) and direct lending, direct lending still offers a higher spread.
- Middle-market CLO equity presents good relative value as liability spreads have compressed, creating better arbitrage opportunities.
Rise of LMEs
- Liability management exercises (LMEs), where debt takes a haircut before equity, are becoming more common, impacting BSL market quality.
- This practice dilutes the traditional hierarchy of losses, potentially creating uncertainty and volatility in loan pricing.