The Credit Edge by Bloomberg Intelligence

In this discussion, Mike Best, a seasoned portfolio manager at Barings, reveals a growing interest in European corporate debt as investors shift focus from the US. He explains that concerns over US economic policies are driving this trend. The conversation dives into potential risks within European credit markets, the impact on various sectors like retail and communications, and strategies for navigating liability management. Best emphasizes the importance of careful investment amid global economic uncertainty, highlighting the unique opportunities in Europe's landscape.

Michael Gatto, Partner and head of private side businesses at Silverpoint Capital, shares insights on the precarious state of private debt funds in today's market. He warns that when the credit cycle shifts, many funds overly exposed to weak companies could face dire consequences. Gatto discusses Silver Point’s strategies for navigating private credit, emphasizing the importance of due diligence and strong lender-sponsor relationships. The conversation also touches on the evolving landscape of liability management and the complexities of LMA documents in stress investing.

Greg Peters, co-chief investment officer at PGIM Fixed Income, shares insights on the resilience of collateralized loan obligations (CLOs) in the face of rising credit risks. He classifies CLOs as 'bulletproof,' emphasizing their security during economic downturns. Discussion includes strategies for leveraging liability management and the challenges posed by growing default risks in the consumer and hospitality sectors. Peters highlights the importance of a long-term investment focus while navigating the complexities of current credit markets.

Collin Martin, Director and Fixed Income Strategist at the Schwab Center for Financial Research, discusses the paradox of a rallying credit market amidst high default risks. He warns of investor complacency and low interest coverage ratios among vulnerable borrowers. The conversation dives into private credit risks, floating-rate and preferred debt opportunities, and how trade wars impact consumer confidence. Martin emphasizes the need for cautious investment strategies in this complex landscape, where rising defaults could challenge the current calm.

In this enlightening discussion, Savina Rizova, Co-chief Investment Officer at Dimensional Fund Advisors, shares her insights on the current state of credit markets. She argues that private credit often fails to outperform public junk debt, highlighting the importance of liquidity and transparency in public markets. Rizova also touches on Dimensional's move into mortgage-backed securities and the strategic benefits of their active ETF management. Overall, it’s a compelling look at navigating credit investments amidst market uncertainties.

Robert Dafforn, Chief Investment Officer at Polus Capital Management, discusses the looming threats in the credit markets. He warns that tariffs are pushing more companies toward default. He describes the current situation as 'foothills before the mountain,’ anticipating increased delinquencies amid high interest rates. Dafforn highlights specific sectors ripe with trouble, including chemicals and consumer goods, and suggests that distressed debt could offer 'equity-like returns' for savvy investors navigating this complex landscape.

Yield-hungry credit investors are increasingly seeking longer-dated corporate debt, just as supply is evaporating, according to Barclays. “It’s problematic,” Meghan Graper, the firm’s global head of debt capital markets, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Arnold Kakuda in the latest Credit Edge podcast. “I worry — can we source enough assets to appeal to where the bid is gravitating, and that’s out the curve.” Graper and Kakuda also discuss the growth of private credit, value in financial sector debt, hybrid issuance, the Trump put and league table rankings for global bond underwriters.See omnystudio.com/listener for privacy information.

Property markets are headed for trouble as the US economy slows and interest rates stay high, according to Hines, the global real estate investment manager.“We will probably see a bigger wave of assets in distress,” Alfonso Munk, who runs the firm’s debt business, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Tolu Alamutu in the latest Credit Edge podcast. “What I’m worried about is the operating distress if we get into economic headwinds.” Munk and Alamutu also discuss investment opportunities and risks by property type, region and country, as well as the impact of the trade war on real estate markets worldwide.See omnystudio.com/listener for privacy information.

Marty Fridson, CEO of Fridson Vision High Yield Strategy and a Hall of Fame inductee in fixed income, shares insights on the future of high-yield bonds amidst a looming recession. He predicts an uptick in corporate debt distress, with the high-yield index potentially reaching 1,000 basis points. The discussion covers energy sector bond opportunities, rising default rates, and shifting credit ratings. Fridson also addresses the impact of economic uncertainties and Federal Reserve policies on investor strategies and market dynamics.

Risky corporate debt markets have room to fall further to reflect the damage of ongoing trade wars, according to BlackRock, the $11.6 trillion money manager. “We’re likely to see spreads widen from here as we see further deterioration in risk assets,” Mitch Garfin, the firm’s co-head of leveraged finance, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Robert Schiffman in the latest Credit Edge podcast. “If this uncertainty continues for another quarter, two quarters, three quarters — that could lead to a more significant downturn.” Garfin and Schiffman also discuss private credit relative value, distressed exchanges, technology sector opportunities, portfolio trading and auto sector risk.See omnystudio.com/listener for privacy information.