The Credit Edge by Bloomberg Intelligence

George Goudelias, Chief Investment Officer at Seix Investment Advisors, delves into the rising crisis of 'zombie borrowers' as interest rates soar. He warns these highly-indebted companies, with weak cash flow, face growing pressure in the current market. They also explore the impact of private credit on traditional leveraged finance and identify risky sectors like tech and healthcare amidst poor covenants. Goudelias shares insights on attractive investment buckets and cautions about the consequences of loose underwriting in the private credit space.

Susan Kasser, Head of Private Debt at Neuberger Berman and seasoned veteran from firms like Carlyle and Goldman Sachs, shares her insights on the private debt market. Despite negative media coverage, she reveals that direct loans offer a significant premium over traded debt, with Neuberger's impressive one-basis-point annualized loss rate. Kasser discusses how AI enhances deal sourcing and stresses the importance of selectivity. She analyzes the robust pipeline in U.S. direct lending and addresses sector focuses, while cautioning about persistent negative headlines.

Spencer Cutter, a Bloomberg Intelligence analyst specializing in US energy, joins Damian Sassauer, an emerging-markets credit strategist, to discuss the complexities of investing in Venezuela post-regime change. They explore the enormous challenges for debt recovery and the massive capital needed to revitalize the oil sector. The duo highlights the potential for American and Canadian refineries, particularly Chevron, to benefit from Venezuela's heavy crude, while also examining how Chinese interests could shift amidst U.S. influence.

Mike Contopoulos, Deputy Chief Investment Officer at Richard Bernstein Advisors, dives into the current 'everything bubble' in markets. He shares concerns about tech overvaluation and how rising interest rates may impact credit returns. Contopoulos suggests that AI's hype could distract from underlying financial fundamentals, while he points out opportunities in agency mortgages and European equities. He emphasizes the importance of staying cautious in today’s market, highlighting risks tied to complacency and investor expectations.

Dave Albrecht, President and CIO of Newfleet Asset Management, dives into the risks of the AI debt frenzy. He warns that heavy borrowing by investment-grade firms for AI projects could lead to significant fallout. Albrecht highlights the precarious position of Oracle's debt while advocating for asset-backed securities as a hedge. The discussion covers tactical moves across fixed income, the implications of private credit's growth, and the importance of direct company evaluations. He stresses the need for diversification amid evolving market dynamics.

Tal Reback, a global investment strategist at KKR, discusses the firm's pursuit of yield in the European and Japanese credit markets. With US debt spreads tightening, she emphasizes the importance of geographic diversification and highlights a potential $1 trillion opportunity in European asset-backed securities. Reback details the allure of private credit, risk management strategies, and market complexities. She also shares insights on AI's impact on credit underwriting and the need for selective, quality positioning in today’s exuberant market.

Brad Rogoff, Global Head of Research at Barclays, shares insights on the potential risks in credit markets driven by an AI funding frenzy. He discusses how increased issuance may lead to vulnerabilities if expectations aren’t met. Rogoff emphasizes sector dynamics, encouraging caution around low-grade bonds while highlighting the importance of quality in portfolios. With a focus on 2026 forecasts, he predicts wider spreads but not an imminent recession, urging investors to remain vigilant amid evolving market conditions.

Mathew Cestar, president of Arini and seasoned credit expert, discusses the rising attraction of European private credit amidst shrinking US returns. He highlights Europe’s 50 basis point premium on loans, driven by the complexity of middle-market, non-sponsor deals. Cestar elaborates on borrowers favoring tailored private solutions over banks, and the unique opportunities in sectors like defense. He also shares insights on managing risks, the importance of regulatory transparency, and the strategic focus on senior middle-market loans for optimal returns.

Vanguard Group, the world’s second-largest money manager, is wary of junk bonds given how expensive they’ve become. “Where the market is today doesn’t leave a lot of room for negative surprises,” Michael Chang, head of high-yield corporate credit at the $11 trillion asset manager, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Matthew Geudtner in the latest Credit Edge podcast. “Spreads are pretty tight, yields are about average — it’s not the best time to be investing in high yield,” Chang says. They also discuss Vanguard’s preference for debt from utilities and consumer staples companies, how to get extra yield from leveraged loans and how to profit from liability-management exercises.See omnystudio.com/listener for privacy information.

Danielle Poli, a portfolio manager at Oaktree Capital Management, shares her insights on the cautionary trends in credit markets. She highlights the alarming lack of discipline as investors rush to fund AI-related ventures, questioning the sustainability of such hype. The discussion also covers strategies for finding strong returns in collateralized loan obligations and real estate debt, as well as concerns about credit cycles and the impact of liability management exchanges. Poli emphasizes a disciplined investment approach amidst growing competition for capital.