As we wrap up our COVID series, we turn our attention to the path ahead, as unclear as that is. Or as one economist put it succinctly: “Anyone who thinks we’re going to keep moving up in a straight line is living in La-La Land.” 

The good news is markets have fully absorbed the shock of America stuck at home, and its impact on commercial activity.  

The wide discount in secondary loan prices has shrunk. Credit investors are left with higher values, though fewer bargains. But what are the revenue and earnings assumptions behind those new values?  

Credit managers now have a ring-side seat to deteriorating borrower performance combined with the issuer-friendly terms of past buyout financings. Expect those terms to change...

“The GFC was a crisis that began on Wall Street and spread to Main Street. COVID-19 is a crisis that began on Main Street and spread to Wall Street.” 

That’s how one private credit manager compared the two worst downturns since the 1930’s. With the coronavirus still in its early stages, this pandemic might end up worse in some respects than any of them.  

Most recessions are caused by a misallocation of capital, whether mortgages, high tech, or emerging market debt. The Great Recession began with too much leverage in the system.    

This time the banking system was healthier than its ever been. A biological threat forced lock-downs, bringing commercial activity to a stand-still...

If you’re watching this broadcast from your home office, you’re not alone. According to one study, 97% of the US population is either at home or sheltering in place.

This has completely upended the free-flowing, dynamic nature of the largest, most diversified economy on the planet. 

-Industries that took decades to develop competitive products and services to meet consumer and commercial demand, have been thrown into disarray.

In the early phase of the crisis, investors studied the most obviously vulnerable sectors for weakness. These included travel, leisure, hospitality, gaming, transportation, and retail. These all took almost immediate revenue hits...

This week we wrap up our conversation with Brian Nick, Nuveen’s chief investment strategist: 

Q1: How do you compare this cycle with the last one (Global Financial Crisis)?  

Q2: The Fed did jump in pretty quickly to cut rates to zero. Are they out of weapons? 

Q3: Do PrivateEquity firms have any Federal rescue programs available for their MiddleMarket portfolio companies?

As goes COVID-19, so goes the nation.”  

We rephrase the famous 1950’s dictum on General Motors’ relationship to the national welfare in examining how the coronavirus has hijacked all aspects of the economy...

“We did not underwrite for this.” So said the partner of a top-tier middle market private equity firm, speaking of the challenges dealing with the impact to businesses of #COVID-19.  

“We always model downside scenarios for investments,” told us. “But the zero revenue case wasn’t one of them. This is such a dramatic shift from anything anyone has ever encountered. We’re working 24/7 to figure it out.”...

On February 12 a columnist Barron’s wrote: “The three main U.S. stock indices closed at record highs as concerns over the coronavirus economic impact seemed to fade…Can anything stop this rally?”

That was six weeks ago. The Dow was at 29,551. Today it’s 8,000 points lower, the economy at a standstill, global markets in shambles, Americans stuck at home...

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 the 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 risks – bubbles or stickier stuff – remains to be seen.”...

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...