Lending to law firms against portfolios of legal assets can generate hefty returns, according to North Wall Capital, the London-based credit investor. “We target 25%-plus IRRs, and we have historically outperformed that,” Fabian Chrobog, its chief investment officer and founder, says in Bloomberg Intelligence’s Credit Edge podcast. Separately, North Wall aims to make “mid teens” gains in middle-market private credit, Chrobog tells Bloomberg News’ James Crombie and BI senior credit analyst Tolu Alamutu. Also in this episode, Chrobog and Alamutu discuss creditor protections, real estate opportunity and the advantages of geographical diversification. “I can see the returns in the US decreasing while I can see still some really interesting opportunities in Europe,” says Chrobog. 

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AllianceBernstein sees opportunity in European and emerging market credit markets and is steering clear of energy sector debt. “High-quality European high yield, on a dollar-hedged basis, is attractive,” Will Smith, director of U.S. high-yield credit at AllianceBernstein, says in the latest Credit Edge podcast from Bloomberg Intelligence. In EM corporate bonds, “you’re getting paid a lot more risk premium there — a lot more in spreads than you are in developed market credit markets,” Smith tells Bloomberg News’ James Crombie and Bloomberg Intelligence senior credit analyst Spencer Cutter. Smith and Cutter also discuss relative value and risks in oil and gas company debt. “Your antenna goes off when energy companies start returning capital to shareholders,” says Smith. 

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There are potential catalysts for the debt of cruise lines like Carnival and Royal Caribbean, as well as Rolls Royce and Ford, according to Bloomberg Intelligence. BI senior analysts Stephen Flynn and Aidan Cheslin join James Crombie of Bloomberg News in this edition of BI’s Credit Edge podcast to discuss the outlook for US and European credit, identifying situations where their teams’ research differs with consensus. UBS and Jaguar Land Rover have bonds trading wide to peers that could tighten, while others like Disney and Chesapeake face significant headwinds. Flynn and Cheslin also discuss the macroeconomic and geopolitical outlook and risks of a broad credit-market correction. “There seems to be a lack of confidence in the rarefied valuation levels we’re at,” said Cheslin. “That’s something that can unwind pretty quickly.”

Please note: The Credit Edge podcast is going on vacation, and won’t be published Aug. 8. The next episode will be on Aug. 15.

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Small-cap US companies are at risk of default as debt comes due and the economy slows, according to Alan McKnight chief investment officer at Regions Bank. “Look at the Russell 2000 — over 50% of those names are non-earners right now. They’re actually unprofitable,” McKnight says in the latest Credit Edge podcast from Bloomberg Intelligence. “There’s a lot of names in that sort of realm that could be on the tipping point, particularly in light of when they have to refinance their debt,” he tells Bloomberg News’ James Crombie and Bloomberg Intelligence credit analyst Matthew Geudtner. McKnight sees particular stress on companies exposed to low-income US consumers. McKnight and Geudtner also discuss opportunities in the industrial and defense sectors, including major borrowers like Honeywell and Lockheed Martin. 

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Antares Capital, the US-based private credit firm, is looking to expand in Europe and also sees opportunity in real estate, infrastructure and asset-backed finance. “In order to scale, we’d probably need to do an acquisition,” Tim Lyne, the direct lender’s chief executive officer, says in the latest Credit Edge podcast from Bloomberg Intelligence. “We are constantly evaluating Europe,” he tells Bloomberg News’ James Crombie and Bloomberg Intelligence senior credit analyst David Havens. Lyne and Havens also discuss Antares’ funding strategy, areas of market stress, fundraising and the broadening of the private credit investor base. “You’re beginning to see this democratization of the asset class,” says Lyne.

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 Politics and commercial real estate are the biggest perils for banks, according to Bloomberg Intelligence senior credit analysts Arnold Kakuda and Jeroen Julius. “In terms of CRE, it hits mostly the smaller regional banks,” Kakuda tells Bloomberg News senior editor James Crombie in the latest Credit Edge podcast from Bloomberg Intelligence. “If the sovereign rating comes down or is put on negative outlook, bank ratings are likely to follow,” Julius says, referring to European financial institutions. In addition, Julius and Kakuda debate unrealized losses sitting on balance sheets, consolidation, regulation and the outlook for more bank bond issuance. They also weigh opportunities in Additional Tier 1 and preferred debt. “You get high-yield returns for IG risk,” says Kakuda, speaking of the latter. 

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Private credit markets are under pressure from high interest rates, while excess demand is keeping spreads low, according to Wayne Dahl, co-portfolio manager for Oaktree’s global credit and investment grade solutions strategies. “I think there will be some general stress,” says Dahl in the latest Credit Edge podcast from Bloomberg Intelligence. “When people get excited, they put money in — the end investor has no choice but to invest that, and therefore you’ll maybe see spreads compress a little bit more than would otherwise be warranted,” Dahl tells Bloomberg News’ James Crombie and BI Senior Credit Analyst Mike Holland. Also in this episode, Dahl and Holland discuss risk in the health care sector, as well as opportunities in consumer staples, insurance and securitized credit. 

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Commercial mortgage-backed securities are the best credit opportunity for the next 12 months, according to Oded Manor, global head of fixed income manager research at BlackRock. “CMBS is super-interesting because everyone hates it — or many people hate it,” says Manor in the latest Credit Edge podcast from Bloomberg Intelligence. “That market is already pricing a lot of the negative news, unlike many other parts,” Manor tells Bloomberg News’ James Crombie and BI Senior Credit Analyst Jody Lurie. Also in this episode, Manor and Lurie discuss liquidity risk, as well as relative value between bonds and loans. In addition, Manor talks about headwinds in European credit markets from the upcoming French election.

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Up to a quarter of Europe’s high-yield borrowers can’t afford to pay the current high interest rates to refinance debt that’s coming due, according to alternative asset manager Arini. “The market has been very active in refinancing these companies but we still have a lot to do,” says Hamza Lemssouguer, founder and chief investment officer of Arini, in the latest Credit Edge podcast from Bloomberg Intelligence. For as much as 25% of the market, “it’s just impossible to afford the current interest rates,” Lemssouguer tells Bloomberg News’ James Crombie and Giulia Morpurgo, and Bloomberg Intelligence Senior Credit Analyst Tolu Alamutu. Also in this episode, Lemssouguer and Alamutu discuss challenges in the commercial and residential real estate sector. And Lemssouguer talks about how to invest in debt collectors. 

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Private credit’s double-digit returns are here to stay, even as interest rates drop and risks rise, according to Arcmont Asset Management. “Our spreads have been very consistent for a decade,” says Mattis Poetter, the European private debt firm’s co-chief investment officer, in the latest Credit Edge podcast from Bloomberg Intelligence. “I think that’s sustainable,” he tells Bloomberg News’ James Crombie and Kat Hidalgo, and Bloomberg Intelligence Senior Credit Analyst Robert Schiffman. In addition, Arcmont’s co-CIO discusses private debt defaults, pay-in-kind structures, debt-for-equity swaps and opportunities in net-asset-value financing. Also in this episode, Poetter and Schiffman weigh market dislocations and opportunities for rescue financing. 

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