All the Credit Credit Markets in Transition: The Evolution of Liability Management
Jun 3, 2025
Ryan Kelly, Lead Portfolio Manager at PGIM Fixed Income, and Rishav Puri, Special Situations Credit Analyst, dive into the shifting landscape of liability management in credit markets. They discuss the surge of Liability Management Exercises (LMEs) as proactive measures amidst rising interest rates. The duo highlights how strategic negotiations can balance risks and benefits, echoing the need for thorough research. They also touch on the potential for increased defaults, urging investors to navigate complexities for opportunities.
AI Snips
Chapters
Transcript
Episode notes
What Is Liability Management?
- Liability management occurs mostly in leveraged finance markets in the US and Europe, notably high yield and syndicated loans.
- Borrowers initiate changes to credit terms to address liquidity and maturity challenges, aiming to improve capital structure health.
Why LMEs Became Prevalent
- Liability management events (LMEs) rose after 2022, overtaking hard defaults, despite overall low default rates.
- Rising rates from near zero to around 5% pressured capital structures, making refinancing harder and driving increased LME activity.
How LMEs Create Competitive Tension
- Liability management aims to lower capital costs by exploiting flexible debt agreements.
- Companies create competitive tension between lenders, especially complex in multi-layered capital structures.