Understanding the connection between business and structural risks is one of the keys to successful credit investing. “Good company, bad balance sheet” is how opportunistic credit managers describe troubled but attractive situations in which to invest. It’s helpful to examine these transactions for clues as to how the borrower got a bad balance sheet to…
Why is portfolio construction such an important concept for analyzing private credit managers? The answer seems obvious, but it’s more than ensuring defaults and loses are minimized. As the asset class has grown to dominate the debt capital markets, questions persist around its durability. How will the asset class perform in a real downturn? Will…
This week we acquainted ourselves with fun facts about solar eclipses. One is the fortuitousness of size and distance. If the Moon was slightly smaller or further away from Earth, there would be no totality. This coincidence is also impermanent. Apparently, the Moon is creeping away from our planet at the rate of 1.5 inches…
Last Thursday was opening day for MLB, a hopeful sign of spring. Catching up on some interesting 2023 statistics from our national pastime, we noted that Luis Arráez of the Miami Marlins won the NL batting championship with a .354 average. Astonishingly, this was Arráez’s second consecutive title. He topped the AL in 2022 with…
While private credit is growing in popularity with both investors and issuers, banks are seen to be struggling with the new order. While arguing for more non-bank regulation to Congress and federal agencies, they are busy trying to start their own direct lending businesses or partnering with established firms. Given the challenges of holding leveraged…
Now that the liquid loan market is opening, albeit with mostly refinancings, larger issuers have more choices. This is actually a good and natural thing. For those companies willing to go through the ratings and syndication processes in the bank market, terms can be competitive. Because CLO equity investors benefit from much higher structural leverage,…
Readers of The Lead Left will be familiar with our impatience for the “sky-is-falling” brand of financial industry reporting (“risky loans!”). Recent news articles have further tested us. There’s plenty of room for well-researched pieces about real risks associated with leveraged lending and sponsor buyouts. Indeed, these can be valuable by highlighting managers whose practices…
To understand the dynamics of buyout finance today, you need to appreciate the difference in what drives the public credit markets versus private credit. The biggest change since the GFC has been the shift away from the investment banking model. For both corporates and private equity-backed deals, borrowers often relied on investment banks to advise…
We were perusing recently a piece on the future of private equity in an excellent state of the market study from Evercore’s private funds group. One of the paragraph section subtitles read: “The corporate governance fix that became an asset class.” The thesis was that private equity sponsors solve strategic problems for growing (or challenged)…
It is a measure of the impact the GFC had on regulators, financial policy makers, and the capital markets that faith in systemic liquidity is now a foundational principle. We saw that confidence further underlined as the economy emerged intact from the global pandemic. And supported as well by the patience shown by financial markets…