Private debt needs to get better at explaining itself as the $1.6 trillion asset class goes mainstream, according to James Reynolds, global head of direct lending at Goldman Sachs. “We collectively need to just demystify what we do — which is in simple words, lending to corporates,” Reynolds tells Bloomberg News’ Lisa Lee and James Crombie and Bloomberg Intelligence’s David Havens in the latest Credit Edge podcast. Goldman wants to double the size of its $110 billion private credit business. Reynolds sees growth opportunities in Asia, investment-grade loans and leveraged finance, as well as more secondary trade in private debt. Also in this episode, BI’s Havens analyzes the rush by business development companies (BCDs) to go public as valuations soar.

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Private-debt firms are set to consolidate as larger companies dominate deal flow, according to Marc Chowrimootoo, portfolio manager at Hayfin Capital Management. “We’re seeing a concentration within fewer hands,” Chowrimootoo tells Bloomberg News’ Lisa Lee and James Crombie and Bloomberg Intelligence’s Julie Hung in the latest Credit Edge podcast. “That trend is going to continue.” He identifies debt refinancing as the big opportunity for private lenders in 2024. Hayfin likes the health-care and software sectors, while avoiding smaller borrowers that are struggling with higher rates. In addition, BI’s Hung weighs the impact on food and drink companies of weight-loss drugs like Ozempic.

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Commercial real estate faces a tough 2024 as trillions of dollars in debt comes due and refinancing gets harder, according to Neil Callanan, corporate finance czar at Bloomberg News. Offices in financial centers are especially under pressure after banks tightened lending standards, Callanan tells Bloomberg senior editor James Crombie in the latest episode of the BI Credit Edge Podcast. He’s watching for delayed and canceled new projects and short selling of real estate companies as signals of distress. In addition, Jody Lurie, Bloomberg Intelligence credit analyst, weighs the outlook for leisure-sector bonds after a stellar year in 2023. Gains are expected at a slower pace, while some junk cruise operators are heading for investment grade, according to Lurie. Business travel will boost hotels, while car rental firms are more challenged, she adds.

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New entrants to the rapidly-growing private credit market, scrambling to deploy capital as demand exceeds supply, risk making loans that don’t perform well, according to Alan Schrager, senior partner and portfolio manager at Oak Hill Advisors. “You sort of love private credit tourists who potentially do bad deals, because bad deals that ultimately you don’t own make you look good on a relative basis,” Schrager says. “Even though we do think private credit is really cheap, we are trying to stay high quality,” Schrager tells Bloomberg News senior reporter Lisa Lee senior editor James Crombie in the latest episode of the Credit Edge podcast. Also in this episode, Bloomberg Intelligence senior credit analyst Arnold Kakuda weighs the outlook for banks heading into a tougher macro environment next year. Large financial institutions are well prepared for credit risk after withdrawing from some markets that private lenders stepped into fill, and they will be big bond issuers in January, according to Kakuda. Regional banks are more exposed to commercial real estate stress, he adds.

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Private credit will hog the limelight in 2024, with ever-larger deals and continued expansion, even as high rates and a slowing economy add risks. To discuss the outlook for next year, Paula Seligson and Lisa Lee — senior reporters in Bloomberg’s global private credit news team — join senior editor James Crombie in the latest episode of the Credit Edge podcast. Private debt will likely attract more investors — and the attention of regulators seeking transparency. Also in this episode, Bloomberg Intelligence credit analyst Rena Kwok weighs the resilience of Asean banks amid a Chinese economic slowdown. She identifies relative value in Bangkok Bank bonds and sees risks across the board from elevated interest rates. Private credit activity has been muted in the region, but it’s something to watch for next year, Kwok says.

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More companies will default on their debt next year because of higher rates and slower earnings, but there won’t be a widespread crisis, says Christopher Sheldon, co-head of credit and markets at KKR. “We don’t think it’s Armageddon,” he tells Bloomberg News senior reporter Lisa Lee and senior editor James Crombie in this episode of the Credit Edge podcast. He expects continued stress in the retail and health-care sectors — and also sees big opportunity in asset-based finance. In addition, Bloomberg Intelligence credit analyst Sharon Chen weighs the outlook for Indian utilities, including relative value in the bonds of Adani. Companies borrowing more cheaply in local markets reduced the need to raise debt abroad. Investors are meanwhile shifting into Indian credit and out of China, which is suffering real estate distress, Chen says.

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Private credit offers double-digit returns with structures that can reduce risk, just as increased competition boosts secondary trading options, says Mark Attanasio, co-founder of Crescent Capital. “We don’t see a bubble yet,” he tells Bloomberg News senior reporter Lisa Lee and senior editor James Crombie in this episode of the Credit Edge podcast. He avoids transport and energy, but is looking to participate in private loans in other sectors across the US and Europe. Attanasio also discusses the performance of his Milwaukee Brewers baseball business after rule changes shortened the game, and takes questions on his growing stake in Norwich City football club. In addition, Bloomberg Intelligence senior credit analyst Stephen Flynn weighs the outlook for companies in the communications sector, which is lagging a high-yield bond rally amid distress at some of the biggest borrowers. Dish, Altice and Lumen have significant leverage and maturity wall challenges, while cashflow-rich companies like Charter Communications are in good shape for 2024, he says.

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When fast-food chain Raising Cane’s tapped the US capital market this month, it revealed a $7.6 billion fortune held by CEO Todd Graves. Strong demand for the chicken-finger maker’s bonds highlights growing investor appetite for risky debt as the US economy appears headed for a soft landing, Bloomberg News reporter Michael Tobin tells Bloomberg senior editor James Crombie in this episode of the Credit Edge podcast. And it shows consumer spending holding up despite inflationary pressures, Tobin says. Also in this episode, Bloomberg Intelligence senior analyst Mike Holland weighs the outlook for US health care. Some highly-indebted companies like Community Health Systems and Bausch Health are hitting a wall as liquidity dries up, while others like HCA Healthcare are thriving, Holland says.

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Private credit’s rapid growth and lack of transparency are concerns to be monitored as funding costs jump, says Fraser Lundie, head of fixed income at Federated Hermes in London.  Steep rises in interest payments for lower-rated companies are “not going to be absorbed cleanly and easily,” he tells Bloomberg News senior reporter Lisa Lee and senior editor James Crombie. “The lack of look through is something that I find it quite difficult to have conviction on,” adds Lundie, referring to private debt. Federated Hermes manages about $715 billion in assets. Also in this episode of Credit Edge, Bloomberg Intelligence analyst Pri de Silva analyzes the additional tier 1 bond market, which is staging a comeback and offering double-digit returns. More issuance from Japanese banks provides opportunities for diversification, he adds. 

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WeWork Inc. — known for free-flowing booze and a fleeting $47 billion valuation — declared bankruptcy just two years after going public. This cautionary tale of over-indebtedness highlights the perils for investors who fall in love with businesses they don’t really understand, says Bloomberg News senior reporter Reshmi Basu. And it’s a warning for lenders to astronomically-valued start-ups as borrowers struggle with soaring debt payments, Basu tells Bloomberg senior editor James Crombie. Also in this episode of Credit Edge, Bloomberg Intelligence analyst Cecilia Chan analyzes US efforts to keep advanced chips out of China — and the fallout for Asia’s technology sector. In addition, Chan discusses how Macau’s casino comeback is boosting gaming companies.

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