Altice’s debt woes pose a threat to the collateralized loan obligation market, says Gunther Stein, chief investment officer for US performing credit and CLOs at Sound Point Capital Management. “Altice is clearly an issue for Europe, and in particular the European CLO market,” Stein tells Bloomberg News’ Carmen Arroyo and James Crombie and Bloomberg Intelligence’s Robert Schiffman in the latest Credit Edge podcast. “It’s something we all have to be thoughtful around in terms of how we’re managing our portfolios,” he said, referring to investors’ exposure to borrowers with large capital structures. While the US leveraged finance market is bigger and more diversified than Europe, Altice is also a “relevant” borrower there, Stein adds. He expects higher-for-longer rates to boost leveraged loans and sees value in the technology and cable sectors, as well as health care companies like LifePoint. “There’s good value still in the leveraged loan space,” says Stein. In this episode, Sound Point also discusses CLO issuance, pricing and leveraged loan liquidity.

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Credit investors aren’t getting enough compensation for corporate credit risk, says Matthew Eagan, a portfolio manager and head of the full discretion team at Loomis Sayles & Co. “Judging from the spread levels, I think they’ve gone a bit too far,” Eagan tells Bloomberg News’ Lisa Lee and James Crombie and Bloomberg Intelligence’s Stephen Flynn in the latest Credit Edge podcast. He sees investment grade debt as an opportunity, given decent corporate earnings and the fact that debt costs are mostly locked in. Loomis likes BBB rated debt, as well as bonds issued by banks and media companies. Eagan also says ongoing concern about commercial real estate risk is not likely to hurt major banks, and should remain contained to smaller institutions. Also in this episode, BI’s Flynn analyzes improving credit prospects at Paramount Global and predicts a US election boost for iHeartMedia. 

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Asset-based lending is set to expand over the next 10 years at the same heady pace as private credit, according to Bruce Richards, CEO and Chairman of Marathon Asset Management. “The $100 billion middle-market lending and private-credit lending business in 2008 which grew to $1.7 trillion where it is today — a 17-fold increase — you’ll see the same thing happening in ABL in this next decade,” he tells Bloomberg News’ Lisa Lee and James Crombie and Bloomberg Intelligence’s Arnold Kakuda, in the latest Credit Edge podcast. “I love ABL,” said Richards, referring to loans backed by assets like consumer loans, aircraft and ships. In addition, Richards details how his firm is making returns that can exceed 20% buying office loans from banks, which are having to sell them for regulatory reasons. “Commercial real estate represents a lot of distress in the marketplace but also one of the greatest opportunities in the marketplace right now,” said Richards. 

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Credit derivatives and securitizations offer high yields and can perform well even if the US economy tips into recession, says Jonathan Dorfman, managing principal and chief investment officer at Napier Park Global Capital. “In credit, for the first time in 15 years, you can actually create portfolios that give equity-like returns,” he tells Bloomberg News’ Lisa Lee and James Crombie and Bloomberg Intelligence’s Tolu Alamutu, in the latest Credit Edge podcast. Standardization and improved transparency have reduced risk in structured credit, which can make better inflation-adjusted gains than corporate bonds, he says. Dorfman also raises concerns about private credit — which doesn’t mark to market — noting “extraordinary” differences in pricing of the same asset by managers. In addition, Alamutu weighs the outlook for real estate as rates stay high for longer. That’s pushing more companies in the sector to borrow in public bond markets, she says. Listen to this episode on Apple Podcasts and Spotify.

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Financial institutions are selling off consumer loans under pressure from regulators, setting up investors for significant gains, according to Mark Jenkins, head of global credit at Carlyle Group Inc. “Banks in the US in particular are managing down their risk-weighed assets, and that is creating a deluge of opportunities for us,” he tells Bloomberg News’ Lisa Lee and James Crombie, and Bloomberg Intelligence’s Robert Schiffman, in the latest Credit Edge podcast. Debt being offloaded by banks includes credit card, student and housing loans — which are repackaged into asset-backed securities — and is flowing at a clip Jenkins says he’s not seen before in his 33-year career. Carlyle is also finding elevated returns in high-grade private credit, though Jenkins says stress may show up in direct loans made to companies in 2020-2021, when prices were at an all-time high and rates fell to near zero. In this episode, Jenkins also discusses how Carlyle is testing artificial intelligence for investment decision making, but says it’s too soon to discern a credit-investment strategy focused on AI. “There are those opportunities, but they aren’t directly on the engine of AI — it’s really the infrastructure of AI that we would look to support and build out,” he says.

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Buyers of distressed real estate debt stand to make significant gains over the next few years, according to Joshua Pack, co-CEO at Fortress Investment Group. “This is going to be a trillion-dollar opportunity,” he said. Pack discusses how Fortress is getting ready for “a massive restructuring” in the sector with Bloomberg News’ Lisa Lee and James Crombie and Bloomberg Intelligence’s Tolu Alamutu in the latest Credit Edge podcast. The impact on banks will be long-lasting and not limited to smaller financial institutions, says Pack, who predicts more consolidation and liquidation. Also in this episode, Alamutu analyzes the real estate stress spreading through Europe that’s hurting banks, insurers and asset managers. Germany and Sweden are areas of concern, while Signa’s insolvency adds Austria to the list of hot spots, Alamutu says. 

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US-style creditor-on-creditor violence spreading to Europe is a worry for loan investors, according to Camille McLeod-Salmon, portfolio manager at Fidelity International. “What we are focused on is this move that’s in the US towards creditor-on-creditor violence — and the shift that you’ve had there — and that translating into Europe,” she said. London-based McLeod-Salmon talks to Bloomberg News’ Lisa Lee and James Crombie and Bloomberg Intelligence’s Aidan Cheslin in the latest Credit Edge podcast. There are opportunities for investors in the technology and chemical sectors, she adds, predicting high-single-digit returns in European leveraged loans. Also in this episode, BI’s Cheslin weighs the outlook for Altice, which is shedding assets in a bid to reduce debt. The company has had to pay up to extend maturities and there’s a risk of divesting crown jewels in pursuit of fresh cash, Cheslin says. 

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Geopolitics are a potential menace to public debt markets that could present opportunities for private lenders, according to Mike Dennis, co-head of European credit at Ares Management. “The capital markets in general are still pretty fragile,” Dennis tells Bloomberg News’ Lisa Lee and James Crombie in the latest Credit Edge podcast. “It wouldn’t take much for that liquidity to reverse out of the system,” he said. Volatility may open the door for private credit firms to participate more in larger corporate loan deals, Dennis says, adding that there’s more demand for European transactions than supply. Also in this episode, Bloomberg Intelligence’s Stephane Kovatchev analyzes the shipping sector after a 300% increase in freight rates. Greater supply of ships coupled with fading demand are expected to relieve some of the price pressure, Kovatchev says.

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Collateralized loan obligations are among the best debt investment opportunities for this year, according to John Wright, global head of credit at Bain Capital. Spreads on the structured investment vehicles, which repackage leveraged loans into bonds of varying risk, may tighten further, even as default rates rise, Wright tells Bloomberg News’ Lisa Lee and James Crombie and Bloomberg Intelligence’s Mike Holland in the latest Credit Edge podcast. He also sees robust potential for growth in India and Australia, as well as in private credit, especially for buyouts. Slim recovery rates in the loan market are among the biggest worries. Also in this episode, BI’s Holland analyzes the outlook for WeightWatchers, whose bonds are dropping. The company faces a tough road ahead but there is a path to survival, Holland says. 

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 The US economy is at risk of tipping into recession in the second half of this year, putting pressure on corporate debt markets, says Chris Alwine, global head of credit at Vanguard. “What would precipitate that shallow recession is that corporations are just not hiring, with a modest increase in layoffs,” said Alwine. Vanguard, one of the biggest money managers in the world, with $8.6 trillion in assets, is cautious on junk-rated debt, Alwine tells Bloomberg News’ Lisa Lee and James Crombie and Bloomberg Intelligence’s Stephen Flynn in the latest Credit Edge podcast. He meanwhile sees opportunity in the bonds of large financial institutions. Also in this episode, BI’s Flynn analyzes the debt troubles at Dish Network Corp. and what it means for the rest of the sector. 

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