The credit market exhibits signs of improvement as lower interest rates increase the availability of credit, particularly benefiting struggling borrowers with floating rate debt. The upcoming maturity wall is significant, with approximately $40 billion in loan maturities due over the next year, predominantly affecting lower-rated credits like split B and triple C companies. These borrowers, who have faced challenges in securing refinancing under higher rates, may find relief through the more favorable rate environment, though some may require alternative financing solutions. The real estate sector, identified as particularly vulnerable to previous rate hikes, stands to gain optimism and experience enhanced liquidity and valuation stability as rates decrease, suggesting potential positive outcomes for the market as participants adjust to the new conditions.
This week, the Fed cut benchmark rates by 50 basis points. Lower financing costs should be a relief for companies that need to borrow in the form of bonds or loans. But, the weird thing about the previous few years of high rates and high inflation is how much corporate credit has defied expectations. While defaults increased slightly, there wasn’t a huge wave of bankruptcies. And most companies haven’t really had trouble finding financing, with a smorgasbord of options available to them — including from the booming private credit market. So what happens now that the Fed is lowering rates? In this episode, we speak with Danielle Poli, co-portfolio manager of Oaktree’s Diversified Income Fund and a founding member of the firm’s investment committee, about how she sees the next leg of the credit cycle unfolding, and how she decides between a multitude of potential investments in the space.
Related Links:
The Black Hole of Private Credit That’s Swallowing the Economy
The Hottest Way for Banks to Get Risk Off Their Balance Sheets
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