Dr. Edward Altman, creator of the Z-Score bankruptcy prediction model and Max L. Heine Professor of Finance, Emeritus at the Stern School of Business, joins Julia La Roche on episode 257 for an in-depth discussion on where we are in the credit cycle.
Sponsor: This episode is brought to you by Monetary Metals.
https://monetary-metals.com/julia
In this episode, Ed Altman discusses the current state of the credit cycle. Dr. Altman explains that 2024 saw more Chapter 11 bankruptcy filings than any year since the Great Financial Crisis, with over 7,000 filings. He analyzes why the economy has moved from a "benign" phase to a "stress" phase in his credit cycle framework, highlighting the dichotomy between high-yield bonds and bank loans, the impact of floating-rate debt, and the growth of private credit markets. Dr. Altman also examines distressed exchanges as alternatives to bankruptcy, government debt concerns, and why credit cycles typically precede business cycles as leading economic indicators.
Dr. Altman is a renowned professor and researcher for his bankruptcy prediction and credit risk analysis work. Dr. Altman earned his MBA and Ph.D. in Finance from the University of California, Los Angeles. He has been with NYU Stern School of Business since 1967. He is most famous for developing the Z-Score formula in the late 1960s. The Z-Score is a financial model that uses historical data to predict a company's likelihood of bankruptcy. This formula is widely used by investors, financial analysts, and auditors as a tool for predicting corporate defaults and an aid in credit risk management.
Dr. Altman has published numerous books and articles on the topics of bankruptcy, corporate distress analysis, corporate financial restructuring, and credit risk. His work has had a significant impact on both academic finance and practical investment analysis.
Links:
Wiser Funding: https://www.wiserfunding.com/
Corporate Financial Distress, Restructuring and Bankruptcy Book: https://www.amazon.com/Corporate-Financial-Distress-Restructuring-Bankruptcy/dp/1119481805/
NYU Stern: https://www.stern.nyu.edu/faculty/bio/edward-altman
00:00 - Introduction to Dr. Edward Altman
01:17 - The current credit cycle and economy outlook
03:17 - Credit market dichotomy between high yield bonds and bank loans
05:43 - Floating rate vs fixed rate debt performance
09:16 - Credit cycle as a leading indicator for the business cycle
15:21 - Record high Chapter 11 bankruptcies in 2024
19:06 - Understanding distressed exchanges as a default technique
26:58 - The Z-Score: history and evolution
33:49 - Changes in corporate debt markets over the decades
36:37 - Bond rating equivalents for Z-Scores
38:32 - Comparing current conditions to the 2007 credit bubble
45:19 - Private credit market growth and impact
51:38 - Government debt concerns and interest payments
59:59 - Closing thoughts on the credit cycle and market outlook
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By Julia La Roche
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Dr. Edward Altman, creator of the Z-Score bankruptcy prediction model and Max L. Heine Professor of Finance, Emeritus at the Stern School of Business, joins Julia La Roche on episode 257 for an in-depth discussion on where we are in the credit cycle.
Sponsor: This episode is brought to you by Monetary Metals.
https://monetary-metals.com/julia
In this episode, Ed Altman discusses the current state of the credit cycle. Dr. Altman explains that 2024 saw more Chapter 11 bankruptcy filings than any year since the Great Financial Crisis, with over 7,000 filings. He analyzes why the economy has moved from a "benign" phase to a "stress" phase in his credit cycle framework, highlighting the dichotomy between high-yield bonds and bank loans, the impact of floating-rate debt, and the growth of private credit markets. Dr. Altman also examines distressed exchanges as alternatives to bankruptcy, government debt concerns, and why credit cycles typically precede business cycles as leading economic indicators.
Dr. Altman is a renowned professor and researcher for his bankruptcy prediction and credit risk analysis work. Dr. Altman earned his MBA and Ph.D. in Finance from the University of California, Los Angeles. He has been with NYU Stern School of Business since 1967. He is most famous for developing the Z-Score formula in the late 1960s. The Z-Score is a financial model that uses historical data to predict a company's likelihood of bankruptcy. This formula is widely used by investors, financial analysts, and auditors as a tool for predicting corporate defaults and an aid in credit risk management.
Dr. Altman has published numerous books and articles on the topics of bankruptcy, corporate distress analysis, corporate financial restructuring, and credit risk. His work has had a significant impact on both academic finance and practical investment analysis.
Links:
Wiser Funding: https://www.wiserfunding.com/
Corporate Financial Distress, Restructuring and Bankruptcy Book: https://www.amazon.com/Corporate-Financial-Distress-Restructuring-Bankruptcy/dp/1119481805/
NYU Stern: https://www.stern.nyu.edu/faculty/bio/edward-altman
00:00 - Introduction to Dr. Edward Altman
01:17 - The current credit cycle and economy outlook
03:17 - Credit market dichotomy between high yield bonds and bank loans
05:43 - Floating rate vs fixed rate debt performance
09:16 - Credit cycle as a leading indicator for the business cycle
15:21 - Record high Chapter 11 bankruptcies in 2024
19:06 - Understanding distressed exchanges as a default technique
26:58 - The Z-Score: history and evolution
33:49 - Changes in corporate debt markets over the decades
36:37 - Bond rating equivalents for Z-Scores
38:32 - Comparing current conditions to the 2007 credit bubble
45:19 - Private credit market growth and impact
51:38 - Government debt concerns and interest payments
59:59 - Closing thoughts on the credit cycle and market outlook
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