The Credit Edge by Bloomberg Intelligence

Banks globally are looking to sell technology loans in an effort to de-risk before year-end, according to Silver Rock Capital Partners. “We do see that bank channel as having some level of indigestion because that was the first and easiest channel that a lot of the biggest borrowers went to,” Vinay Kumar, the private credit firm’s managing partner and chief investment officer tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Negisa Balluku in the latest Credit Edge podcast. “Indigestion does create some opportunities for us to help to place some of that paper, albeit probably at a discount,” Kumar says, referring to financial institutions across the US, Europe and Asia offering loans related to the AI buildout. They also discuss rescue financing, private credit risks, asset-based finance and investment opportunities in software debt.

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Credit-market volatility has widened spreads and made lower-quality private loans look more attractive to investors, according to Invesco. “The opportunity set has broadened quite significantly over the last several quarters,” Scott Baskind, the firm’s global private credit chief investment officer, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Matthew Geudtner in the latest Credit Edge podcast. “Our ability to look for those equity-like returns in a credit instrument is even greater today than it’s been over many years,” Baskind says. They also discuss AI lending, default risks, collateralized loan obligation growth and relative value in Europe.

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A borrowing boom among technology companies and governments is upending debt indexes, raising questions about their relevance to investors. “We’re actually starting to think about whether managing versus a benchmark makes a whole heap of sense,” Ross Pamphilon, Impax Asset Management’s fixed income chief investment officer, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Tolu Alamutu in the latest Credit Edge podcast. “You’re going to end up owning a lot of US Treasuries if you’re in the aggregate index and a lot of tech if you’re in the US investment-grade index,” says Pamphilon, who estimates that about 12% of the high-grade market is now AI or AI related. They also discuss climate risk, opportunities in mortgage-backed debt plus the timing and severity of the next credit cycle.

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Mom-and-pop investors are buying hyperscaler debt after a selloff that has hit bonds with long maturities particularly hard, according to R. Seelaus & Co. “You’re just seeing absolute yields in long Meta paper, or a household name, that retail is starting to find really attractive,” Annie Seelaus, chief executive officer of the broker dealer and asset manager, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Arnold Kakuda in the latest episode of the Credit Edge podcast. “That’s a microcosm of a bigger pocket of demand that’s out there,” says Seelaus, who notes that investors are moving into bonds as stocks become vulnerable to a correction. They also discuss secondary-market liquidity, contagion risks, the asset-backed security boom, private credit turmoil and how to invest in data centers.

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TCW’s $160 billion fixed-income group has slashed credit risk to the lowest in three decades amid valuation and contagion concerns. “Look back over the last 30 years — you would not find a period where we had less exposure to both investment-grade and high-yield bonds as we do today,”Bryan Whalen, the group’s chief investment officer, tells Bloomberg News’James Crombie and Bloomberg Intelligence’sJody Lurie in the latest episode of the Credit Edge podcast. They also discuss the potential for distress in debt rated CCC to spread to other parts of the corporate debt market. “That is the weakest borrower, and they cry uncle first,” says Whalen, referring to CCCs. “Make no mistake about it — your single B borrower is going to feel it next, and then your double B borrowers.”

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Blackstone is looking to more than double its $40 billion systematic credit business, which uses models to crunch data and build portfolios. “This can and should be a $100 billion business if you look at us compared to other large traditional discretionary fixed-income managers,” Adam Dwinells, Blackstone Credit & Insurance’s head of corporate bond strategies, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Jean-Yves Coupin in this episode of the Credit Edge podcast. He expects systematically managed portfolios to rise to 20%-25% of the market, matching equities, from about 1%-2% in US corporate credit now. “You could certainly see something on that order of magnitude in credit eventually. Maybe not over the next couple of years, but over the next decade,” he adds.

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More private investors in distressed companies are looking to replace directors and take control, according to Kirkland & Ellis. “It’s a very important remedy — it candidly drives a lot of negotiation when things are distressed,” H.T. Flanagan, a debt finance partner at the law firm, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s David Havens in the latest Credit Edge podcast. “I have seen folks explore this with greater frequency and execute it with greater frequency,” says Flanagan, who advises private debt funds and alternative lenders. They also discuss the outlook for liability management exercises, hybrid capital solutions and opportunities in defense, aerospace and financial services.

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Magnetar Capital is scouring a $600 billion pile of troubled corporate bonds and loans for value as much of the debt comes due. “Yesterday’s buyout boom is today’s credit opportunity,” Austin Camporin, head of special situations at the $17 billion alternative asset manager, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Negisa Balluku in the latest Credit Edge podcast. “It’s those small firms that incurred debt in the zero interest rate environment, primarily in the broadly syndicated loan market, that are obviously having a harder time,” Camporin says. They also discuss private credit risk and investment opportunities in software, healthcare services, building materials and packaging.

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Lumen Technologies is reducing leverage and reinventing itself as an AI play after completing one of the biggest-ever out-of-court debt restructurings. “We had to keep as many winners as possible if we were going to be able to pull this off,” Chris Stansbury, the company’s president and chief financial officer, tells Bloomberg News’ James Crombie and Reshmi Basu and Bloomberg Intelligence’s Phil Brendel in the latest Credit Edge podcast. “It was a moonshot and it worked,” Stansbury adds. They also discuss capital-expenditure plans, a copper-scrap opportunity worth “hundreds of millions of dollars,” and Lumen’s exposure to the AI backlash.

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High global government yields are a growing threat to corporate debt markets, according to London-based hedge fund Andromeda Capital Management. “You either have to let long-term yields go up — and with that you can cause a credit crunch, especially with all the AI borrowing that’s happened — or you let the currency depreciate,” Alberto Gallo, the firm’s chief investment officer and co-founder, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Stephane Kovatchev in the latest Credit Edge podcast. “We might have already hit some icebergs with government bond yields going so high,” says Gallo, who compares the situation to the Titanic disaster. They also discuss winners and losers from the artificial intelligence boom, private credit contagion and why Japanese inflation matters.

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