The Credit Edge by Bloomberg Intelligence Moody’s Expects LBOs to Make a Comeback
Aug 28, 2025
Christina Padgett, Associate Managing Director at Moody's and credit market expert, discusses the anticipated resurgence of leveraged buyouts (LBOs), particularly in tech and healthcare. She highlights the need for market adjustments due to capital overflow and explores the risks facing lower-rated companies in the current environment of rising interest rates. Tune in to hear about distressed debt exchanges, the forecast for decreasing default rates, and the evolving dynamics of private and public credit markets, all packed with insightful analysis!
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LBOs Drive Distress In Leveraged Markets
- LBOs dominate the distress population because many carry high floating-rate debt and high leverage.
- That concentration makes them more sensitive to sustained higher rates and tariff-driven cost shocks.
Distressed Exchanges Often Count As Defaults
- Distressed exchanges are a major part of defaults and take many forms beyond missed interest payments.
- Moody's treats payment-in-kind conversions and certain extensions/amendments as defaults because they change original servicing commitments.
Plan For Weak Covenants And Recurring Fixes
- Expect weak covenant protection to persist and plan for borrower-friendly documentation.
- Anticipate that repeated liability-management fixes may still lead to Chapter 11 and destroy value.