The Credit Edge by Bloomberg Intelligence

Up to a quarter of Europe’s high-yield borrowers can’t afford to pay the current high interest rates to refinance debt that’s coming due, according to alternative asset manager Arini. “The market has been very active in refinancing these companies but we still have a lot to do,” says Hamza Lemssouguer, founder and chief investment officer of Arini, in the latest Credit Edge podcast from Bloomberg Intelligence. For as much as 25% of the market, “it’s just impossible to afford the current interest rates,” Lemssouguer tells Bloomberg News’ James Crombie and Giulia Morpurgo, and Bloomberg Intelligence Senior Credit Analyst Tolu Alamutu. Also in this episode, Lemssouguer and Alamutu discuss challenges in the commercial and residential real estate sector. And Lemssouguer talks about how to invest in debt collectors. See omnystudio.com/listener for privacy information.

European private debt firm Arcmont Asset Management's co-CIO, Mattis Poetter, discusses the sustainability of double-digit returns in private credit despite dropping interest rates. Topics include defaults, pay-in-kind structures, debt-for-equity swaps, market dislocations, and opportunities in net-asset-value financing.

The best credit investments are in asset-backed securities, particularly those linked to US households, according to JPMorgan Asset Management. “We absolutely see opportunities for yield pickup there,” says Kay Herr, the firm’s chief investment officer for US fixed income, in the latest Credit Edge podcast from Bloomberg Intelligence. “The consumer’s going to be OK,” she tells Bloomberg News’ James Crombie and Bloomberg Intelligence Senior Credit Analyst Julie Hung. The CIO meanwhile flags potential risks building in private credit that could ripple through high-yield debt markets. Also in this episode, Herr and Hung discuss retail trends as high- and low-income consumers diverge. See omnystudio.com/listener for privacy information.

US companies with about $200 billion in debt — 10% of the junk market — can’t survive at prevailing elevated interest rates, according to Bank of America. “At the bottom decile, we are looking at issuers that are in most likelihood not going to be able to come out of this high-rate episode without doing something to their balance sheet,” says Oleg Melentyev, head of US high-yield strategy at Bank of America, in the latest Credit Edge podcast from Bloomberg Intelligence. “Half of that segment is free-cash-flow negative unless the Fed cuts interest rates soon and deep — which is a pretty weak assumption,” he tells Bloomberg News’ James Crombie and Bloomberg Intelligence Credit Analyst Matthew Geudtner. Also in this episode, Melentyev and Geudtner discuss the outlook for companies in the commodity and capital goods sectors. See omnystudio.com/listener for privacy information.

Invesco is buying real estate investment trust debt and preferred bonds from banks, betting that the US economy stays strong and interest rates eventually fall. “If you’re looking at yield, it is kind of a golden age for bonds,” says Matt Brill, the $1.6 trillion money manager’s head of North America investment-grade credit, in the latest Credit Edge podcast from Bloomberg Intelligence. “You’re getting paid to wait and at some point here, you’re going to get that kicker of the Fed starting to cut,” he tells Bloomberg News’ James Crombie and Bloomberg Intelligence Senior Credit Analyst Tolu Alamutu. Also in this episode, Brill and Alamutu discuss commercial real estate risks and opportunities as rates stay high. See omnystudio.com/listener for privacy information.

Household debt is a good investment as the US economy remains strong, Jeremy Forster, portfolio manager at Wellington Management, says in the latest Credit Edge podcast from Bloomberg Intelligence. “We do still think that the US consumer is in really good shape,” he tells Bloomberg News’ James Crombie and Bloomberg Intelligence Senior Credit Analyst Arnold Kakuda. Forster expects “compelling” returns in fixed income for 2024, which he thinks will be the year of the bond. In addition, Wellington likes financial sector and electric utility debt. Forster and Kakuda also debate liability-driven investing and risk in the banking sector as interest rates stay high. See omnystudio.com/listener for privacy information.

Portfolio manager Jerry Cudzil from TCW Group discusses rising private credit stress and potential defaults. He warns of accidents as documentation weakens and pay-in-kind deals increase. TCW is underweight in corporate credit but finds opportunities in CLOs and agency mortgages.

Western Asset Management Co. sees “compelling” opportunities in commercial real estate debt, Co-Chief Investment Officer Michael Buchanan says in the latest Credit Edge podcast from Bloomberg Intelligence. This includes loans for warehouses, distribution centers and hotels, he tells Bloomberg News’ James Crombie and Bloomberg Intelligence Senior Credit Analyst Stephen Flynn, adding that the firm is cautious on offices. In addition, Western Asset likes collateralized loan obligations and debt from companies in the communications sector. Also in this episode, Buchanan and Flynn discuss regulatory risk in mergers and acquisitions, and how investors navigate increasingly aggressive liability management transactions. See omnystudio.com/listener for privacy information.

Altice ‘Jenga Tower’ Menaces Global Credit Markets (Podcast)Altice distress is ripping through global credit markets and setting some ugly precedents for debt investors. Aidan Cheslin from Bloomberg Intelligence joins Irene Garcia Perez, Eleanor Duncan and James Crombie with Bloomberg News to discuss the ongoing drama. Billionaire owner Patrick Drahi has taken a combative approach to creditors, who are joining forces in an effort to avoid steep losses. Credit rating downgrades and asset price falls at Altice France — which has more than €24 billion ($25.6 billion) in debt — make lenders cautious and undermine the ability of other risky companies to refinance debt. The French telecom is “teetering like a Jenga tower with unsustainable leverage and negative free cash flow,” according to BI’s Cheslin.See omnystudio.com/listener for privacy information.

Vishy Tirupattur from Morgan Stanley discusses the importance of Fed policy on credit markets, expecting three rate cuts this year. He favors leveraged loans, CCC rated bonds, and energy sector debt. Topics also include private credit opportunities and commercial real estate risks.