Credit Exchange with Lisa Lee

Investors aren’t being paid enough a premium for the risks in US corporate credit, said Bryan Whalen, chief investment officer of fixed income at TCW, on the latest ‘Credit Exchange with Lisa Lee’ podcast.Whalen, who oversees USD 180bn in fixed income assets, contends investment-grade corporate credit spreads should be paying 50% more than they are. Investors should be getting 120 basis points of spread for IG bonds, but today they are getting paid close to 80bps, Whalen said.During the April volatility, there was a repricing of credit risk, but it didn’t lasted long enough to call the markets broken. But markets aren’t out of the woods, and it’s on the list of possibilities this year, according to Whalen. There are a lot of things that could cause volatility and if the Federal Reserve seems reluctant to rush to rescue markets, “you might actually see the market is broken because of the lack of liquidity,” Whalen said. “And it will stay broken, and that will magnify the downturn.”While Whalen likes being underweight corporate credit, he sees attractiveness in parts of the securitised market – mortgage-backed securities in particular, because some buyers that have traditionally been in the space have temporarily pulled back. Moreover, while Whalen doesn’t like US high yield bonds, he does like some high yield bonds in emerging markets. Asia has the potential to outperform relative to the rest of the world. On European growth prospects, markets may have gotten a little ahead of themselves on the narrative of a fiscal spending boost, and taken a pause on the approach of what Whalen describes, tongue-in-cheek, the “exporting of exceptionalism.” Still, there are some good opportunities in euro-denominated investment-grade corporate bonds, where investors get paid a decent amount of additional spread for the same company in a euro currency versus US dollars, he noted.

“Look at credit markets, they behaved quite differently this time,” said Eddie O’Neill, co-head of global liquid credit at KKR, about the period of volatility that whipped global financial markets in April. “They were very stable.”When equity markets were volatile, credit markets did see some selling off but in a very orderly repricing of risk. There was “no blood in the streets, no sustained buying opportunities,” O’Neill told host Lisa Lee at the Creditflux CLO Symposium 2025 in London. That there were three reasons: 1) the nature of the shock, which is policy driven, would take time to play out and the end result of it is still fairly unknown; 2) credit markets have matured in the last five years with new pools of capital becoming more significant; 3) the markets have been starved of assets and been technically driven through 2024 and 2025 with money on the sidelines waiting to step in.The European credit markets are more stable than the US, contended O’Neill. There is no significant ETF buyer base in Europe, the fundamental health of European corporates is pretty good, and Europeans have had the political realization that they need to turn things around. It's not without risk as maintaining political cohesion in Europe is difficult. Europe still has an Achilles' heel---energy costs and demographic will be a challenge. KKR is generally more bullish on Asia, said O’Neill. Despite the tensions between the US and China and slowdowns in the Chinese property market, Asia has the potential to continue to be a big driver of global growth. Asian credit will become a very big market over the next number of years, and investors should be looking at the region, he said. In particular, the investment grade credit market in Asia currently delivers significantly greater returns with lower defaults and loss rates compared to the US investment grade market.

People fail to give the private equity funds the credit they deserve, said Susan Kasser, head of Neuberger Berman Private Debt, on the latest ‘Credit Exchange with Lisa Lee’ podcast.Whilst in terms of investment opportunities, it has been a less productive start to the year, private equity funds have found interesting investment opportunities. Neuberger Berman has already committed to financing a number of new leveraged buyouts this year. There are a surprising number of companies that appear to be quite insulated from tariff exposure and are pretty recession-resilient as well – to a much greater degree than might have been expected, Kasser said.The beauty of a portfolio of privately-held, privately-negotiated, untraded loans is that concerns, volatility and market sentiment don’t really affect the loans, Kasser told Lisa Lee, managing editor of Creditflux. Rather, the only thing that does impact the loans is the fundamental performance of the companies being lent to. “That will take some time to figure out, but it looks like all should be well,” Kasser said.Kasser noted that an element of the underwriting that people miss is the importance of the private equity sponsor. They have three advantages in fixing a problem. These encompass control (they can make any change they want to), time (they don’t have to exit at any point in time), and capital (they have capital to support existing investments). A lot of problems, including things like recessions, tariffs, inflation, supply chain issues, and higher interest rates, are, to some extent, temporary and fixable, Kasser said.Neuberger Berman passes on many financing deals, even those that may look like good opportunities. “You just need to decide which way you want to err. And we have consistently decided we want to err on [the side of] capital preservation, margin of safety, zero mistakes for the investors,” Kasser said.

Craig Packer, co-president of Blue Owl and a pioneer in the private credit market, shares insights on the rapid growth of private credit and its potential to dominate leveraged finance. He tackles tough questions about market valuation discrepancies, the surge in Payment-in-Kind loans, and strategies for handling economic downturns. Packer believes that despite challenges, private credit will thrive as larger firms adapt to market shifts, creating opportunities amidst the evolving landscape of finance.

Volatility creates opportunity, Michael Zawadzki, global CIO of Blackstone Credit & Insurance, told host Lisa Lee on the Credit Exchange podcast.“Stick with the fundamentals that have been working for us and look to play offense where volatility creates opportunity,” said Zawadzki. In the seven or eight days following the 2 April tariff announcement, Blackstone traded over USD 5 billion of liquid credit.“When we see prices on the screen disconnect from underlying fundamentals, that's a time where you want to lean in,” he advised.“It doesn't mean you need to lean in with and push all of your chips into the centre of the table, but it does mean you can start buying with the expectation that you’ll add more into further weakness.”Private credit’s golden era never really ended. The period in 2023 when base rates were high and spreads were wide, and all deals coming to private was a really attractive market for private credit. Fast forward to today – Zawadzki predicts that they can see a repeat, getting deals that would otherwise have accessed the public market. In addition, private credit will maintain a durable 150bp to 200bp premium to the public markets and expand its reach to around a USD 30 trillion market, of which the bulk will be investment-grade private credit.Blackstone is also having more discussions around the place for European assets in its client portfolios, Zawadzki said.

The expected M&A rebound may take longer to materialise, but it will come, Vivek Bantwal, co-head of global private credit at Goldman Sachs, said on the Credit Exchange podcast. Both public markets and private markets have a place, and in some areas, there’s been a blurring of the lines between the two, Bantwal told Lisa Lee, the managing editor of Creditflux.Given Goldman’s role at the centre of that ecosystem, Bantwal thinks it’s important they are able to show their clients solutions in both markets side-by-side.When underwriting new deals right now, look at how tariffs might impact. But what else are you looking at, Bantwal asks. What’s changed, given the new uncertainty that’s popped up in this world and in investing?The other part of the analysis, though, may not be so much related to tariffs. If you have an economic slowdown or a recession, how is that management team planning to weather the storm? What do you know about their supply chains, what they do with their marketing or their capex plans? Staying close to your management teams and understanding their plans for how to navigate all that is a really important part of the underwriting process, Bantwal emphasises.There’s also opportunities in hybrid – the type of capital that sits in-between debt and equity and is very flexible. Hybrids can be used in a variety of ways, Bantwal notes – especially given the challenges in the private equity community to exit in the current environment.

Jonathan Dorfman, co-founder and CIO of Napier Park Global Capital, shares insights on the impact of Trump-era tariffs on credit markets. He warns that companies in the non-investment grade space face survival risks, leading to increased defaults and higher financing costs. Dorfman highlights the volatility in the market and its psychological toll on consumers and corporate leaders. He contrasts current market resilience with past downturns, emphasizing the need for strategic decision-making amid economic uncertainties.

For private credit, the best dealmaking times are when there’s more volatility, says Mattis Poetter, chief investment officer of leading European private credit firm Arcmont Asset Management, on the latest edition of the ‘Credit Exchange with Lisa Lee’ podcast. “Volatility is generally a very good thing for us in terms of dealmaking and new underwriting,” Poetter told host Lisa Lee, managing editor at Creditflux. Private credit in the past five years has really expanded market share in periods of dislocation.Though still too early to really tell, if there’s more volatility in public markets and increased credit spreads, Poetter can see substantial capital withdrawing from the liquid market and private credit market in Europe, which are much smaller and more inefficient compared to their US counterparts. That would be very good for the large, incumbent European players.Poetter points to 2022 and 2023, when Arcmont saw a vanishing of competitive intensity in Europe. Capital in the European middle market was very hard to come by, liquid markets were shut, US players focused on their home market, and small European lenders struggled to fundraise.The drawback with Trump tariffs is the possibility they will damage the economy or reduce certain trade flows and negatively impact the portfolio of existing loans, Poetter says.

The markets are experiencing a bumpier road than expected on January 1st, said Daniel Pietrzak, global head of private credit at KKR, on the latest issue of the Credit Exchange podcast. Markets have shifted in the past eight weeks, or from the election in November, but the economy still remains in pretty good shape, Pietrzak told Lisa Lee, managing editor at Creditflux. KKR is starting to see a couple of places where they can step in, and perhaps get terms and conditions or pricing that didn’t exist a few weeks ago.These types of markets, when there is volatility, are when private credit should be able to shine. It provides a good tailwind, said Pietrzak. M&A and LBO financing activity hasn’t been as busy as Pietrzak had guessed in November, when the world was coming around to the idea of the Trump presidency being arguably pro-business, pro-deal, and anti-regulatory in some way. Instead, markets have become focused on tariffs and the uncertainty with the knock-on effect of a 'wait-and-see' approach on sale processes. Still, KKR’s private credit team is probably busier than they've been throughout 2022, 2023 and 2024.Pietrzak does worry about what the impact could be over the medium-term. Does this trigger some type of recessionary concern? Does it impact the consumer and their related spending? For Europe, though, the narrative has turned on its head. The markets are getting excited about government spending and the multiplier effect of that, and what that can mean for economic growth.

Recent volatility has opened up fresh opportunities in credit, says John Wright, global head of credit at Bain Capital, in the latest “Credit Exchange” podcast. Wright spoke with Lisa Lee, the managing editor at Creditflux, on his expectations for spread direction – wider, he believes – and compelling opportunities in both public and private debt.“Uncertainty begets wider spreads, and wider spreads beget more yield and more opportunity,” says Wright, with volatility being good for credit markets and for investing. While difficult to gauge the short-term, Wright believes that, over long periods of time, allocating to credit and holding through market volatility outperforms being in and out of the market.Wright is seeing opportunities in high-yield bonds and CLOs. Bain, which has $53 billion in credit assets under management, is “pretty excited” about CLO debt, as spreads are widening and expected to continue doing so. There are compelling opportunities on the CLO equity side, he believes. Bain is also getting involved with European CLO junior debt, since it has moved a little more quickly than the US equivalent.On M&A, “the pendulum has swung back the other way” given from heightened expectations after Trump’s election, Wright notes. But he still expects to see an uptick in M&A activity relative to the last two years, and a resumption of normal M&A activity. That will lead to loan origination.Wright says corporate default activities are at relatively elevated levels. He advises looking beyond the headline default rate that shows historically low levels. The true default rate when accounting for such things as LME (liability management exercise) transactions is higher: “we're closer to three or four percent, which is a reasonably elevated level as it relates to default activity,” he says.