COVID-19 and the leveraged loan market

This week we’ve been doing bedchecks on our friends in the #CreditMarkets. We caught up with one long-time practitioner, hanging out in the home office with family in “bathrobes and bunny slippers.” “The capital markets went from price perfection to price combustion,” he told us. “There’s a lot going on behind the scenes, nothing in […]

Going Viral: Realities of the New Market

Back on January 8th, we reviewed credit market conditions in the wake of the killing of an Iranian general. Could this be the exogenous factor that sparks a Middle East war, and triggers a recession? We concluded with the following observation: “Whether the Fed can continue mainlining enough liquidity all year to overcome any exogenous […]

Private Credit Myth #9: Without a public benchmark, private credit returns aren’t dependable

We wrap up special series on the Top 10 #PrivateCreditMyths with the last two. Myth #9: “Without a public benchmark, private credit returns aren’t dependable” Private credit assets don’t trade. That distinguishes them from more volatile public credit correlated with market moves. Middle market loan yields are therefore more stable through business cycles. Private credit […]

Private Credit Myth #7: Recoveries will be worse than 2009

We turn to #PrivateCreditMyth #7: “Recoveries will be worse than 2009.” This idea comes from the prevalence of record high borrower leverage and cov-lite structures. If performance deteriorates, lenders have no triggers until a payment default. By then, the business could be worth much less than what the sponsor paid for it. And possibly less […]

Private Credit Myth #5: No One Uses Mezzanine Debt Anymore

Here are the next two fables in our special series on myths of #PrivateCredit: Myth #5: “No one uses #mezzanine debt anymore.” Private sub debt regularly gets kicked around at conferences for being “dead.” Particularly with the advent of unitranche financings. Whether you want to call it – sub or junior debt, second lien, PIK […]

Private Credit Myth #3: We’re late in the cycle, so loans are risky

This week in our continuing special series on private credit myths, we come to: Myth #3: “We’re late in the cycle, so loans now are risky.” For issuers one of the virtues of private credit is being available when public markets aren’t available. Buy-and-hold private credit managers have locked-in capacity. Since the assets are not […]

Private Credit Myth #2: Private credit is the next market bubble

We continue our special series this week with: Myth #2: “Private credit is the next market bubble.” It’s a myth that’s applied regularly to leverage loans. The universe of broadly syndicated loans is as large as that of high-yield bonds, so that must be a bad thing. But growth in loans is a classic result […]

Private Credit Myth #1: Private credit is a crowded space

With our discussion last week of the relationship between age and happiness, some readers asked us: Ok, what country has the happiest residents? According to the World Happiness Report, Finland topped a list of 156 countries. The US was 19th, and South Sudan as the least cheerful place to live. Finland is a surprising outcome, […]

Private Credit Myths: Introduction

A Dartmouth College professor has found that middle age is even more depressing than we thought. But things start looking up pretty quickly after that. In a recently published study, David Blanchflower found unhappiness is a U-shaped curve, bottoming out when people are 47.2 years old. But after that, people start feeling better. By the […]

2020 Hindsight in Leveraged Loans

Remember your summer internships in high school? Neither do we.   Wolf Cukier’s stint at NASA’s Goddard Space Flight Center last summer could have been equally forgetful. The Scarsdale, NY teenager began it by searching for anomalous star patterns amid reams of satellite data.   On his third day he noted an odd image near […]