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The Credit Edge by Bloomberg Intelligence

Bloomberg

The Credit Edge reviews the top credit news of the week and looks at the week ahead, with in-depth research of the most important corporate sectors, trends and themes. Analysis of specific corporate bonds and credit default swaps is backed by Bloomberg Intelligence's robust data sets and indexes.

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Thursday · 50 min
Blackstone Is Predicting a Big Surge in Quant Credit Investing
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. See omnystudio.com/listener for privacy information.
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October 1 · 46 min
Kirkland & Ellis Sees More Distressed Lenders Flipping Company Boards
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. See omnystudio.com/listener for privacy information.
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September 24 · 53 min
Magnetar Scours $600 Billion Stressed Debt Pile for Bond, Loan Value
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. See omnystudio.com/listener for privacy information.
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September 17 · 46 min
Lumen’s CFO Looks Ahead After ‘Moonshot’ Debt Deal That Worked
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. See omnystudio.com/listener for privacy information.
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September 10 · 54 min
Hedge Fund Andromeda Warns of ‘Titanic’ Debt Disaster as Yields Soar
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. See omnystudio.com/listener for privacy information.
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September 3 · 49 min
Columbia Threadneedle Scans AI Debt Rush for Alpha Opportunity
Columbia Threadneedle is looking to outperform by buying into the flood of debt from companies building artificial intelligence infrastructure. “It’s really the best place to try to find some volatility and some alpha opportunities here, as long as you can remain nimble,” Tom Murphy, the $715 billion manager’s head of investment-grade credit, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s David Havens in the latest Credit Edge podcast. “If we start to see all of this investment turn into cash flow, it could really be tremendous,” he says. They also discuss fundamental and technical credit market indicators, the September issuance rush and relative value in financial sector bonds. See omnystudio.com/listener for privacy information.
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August 27 · 53 min
‘Things Are Going to Get Crazier’: AI Debt Deluge Recalls 2007 Risks
Massive borrowing by artificial intelligence companies — some of it to fund their own customers — risks inflating a technology-sector bubble, according to Seaport Research Partners. “Things are going to get crazier,” Jay Goldberg, the firm’s senior analyst for semiconductors and electronics, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Robert Schiffman in the latest Credit Edge podcast. “All this debt is coming on stream, it’s going to amp up things even further — this feels to me like 2007,” Goldberg says. “There are certainly corners of the industry that are prone to blow ups.” They also discuss AI vigilantes, concentration risk and growing anxiety about circular financing. See omnystudio.com/listener for privacy information.
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August 20 · 52 min
BMO Slashes Junk Debt Holdings as Geopolitical, Economic Risks Spread
BMO Asset Management, which oversees almost C$300 billion ($218 billion), has cut its junk-bond holdings and moved into safer parts of credit as geopolitical and macroeconomic pressures mount. “We love the movie — we’re still there — but we’re just getting a seat closer to the exit,” Earl Davis, the firm’s head of fixed income and money markets, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Spencer Cutter in the latest Credit Edge podcast. “You’re not getting paid to hold as much risk here,” he says. They also discuss why the financial and energy sectors look attractive, how to play hyperscaler bond issuance and opportunities in Canada’s nascent high-yield market, including debt from commodity and defense companies. See omnystudio.com/listener for privacy information.
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August 13 · 45 min
LBO Debt Coming Due Is Next Big Test for Credit Markets, Says ICG
Companies need to move fast to refinance leveraged-buyout debt coming due over the next few years, according to ICG. “Folks should start getting ahead of it because the traffic jam may be more the issue than anything,” David Saitowitz, the $126 billion global alternative asset manager’s head of US liquid credit, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Mike Holland in the latest Credit Edge podcast. “That could be the kind of risk event that may push the market wider for a period of time,” he says, referring to credit spreads. They also discuss the AI funding bubble, collateralized loan obligation performance and fallen-angel risk. See omnystudio.com/listener for privacy information.
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August 6 · 53 min
Investors Keeping Score on 'Bad PIK', Benefit Street Partners' Kumar Says
Investors are increasingly wary of lenders who dish out so-called bad PIK, or payment-in-kind interest, to help struggling portfolio companies avoid default, according to Anant Kumar, global investment strategist at Benefit Street Partners, the private credit arm of $1.7 trillion asset manager Franklin Templeton. “If you’re a manager who wants to mask stress in the portfolio by doing that, you can probably fool some of the people some of the time,” he tells Bloomberg News’ Sinead Cruise and Bloomberg Intelligence’s Tolu Alamutu in the latest Credit Edge podcast. “I do think investors will catch on if you see a widespread use of PIK in the portfolio without any resolution.” Those managers will likely undershoot expectations when their next fundraising rolls around, Kumar says. The trio also discuss the resilience of private credit illiquidity premia, the specter of inflation and how an industry transparency push is forcing firms to address dubious marks faster than ever before. See omnystudio.com/listener for privacy information.
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July 23 · 48 min
Wellington Passes on Data Center Debt, Questioning Long-Term Value
Data-center debt returns are falling, risk is rising and there’s uncertainty over what the properties may be worth in the long run, Wellington Management says. “We think a lot about that replacement value when evaluating data centers,” Sonali Wilson, the $1.3 trillion manager’s lead investment director for private credit, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s David Havens in the latest Credit Edge podcast. “Today, I’ll say — not every situation — but, by and large, it’s a pass,” she says. They also discuss commercial real estate investment strategies, how to position for AI disruption and why Wellington is building out a private-debt platform now. See omnystudio.com/listener for privacy information.
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July 16 · 47 min
Bull Run in Loans Slams CLO Equity Buyers, Says Eagle Point’s Majewski
Collateralized loan obligations face a second straight year of equity losses, according to Eagle Point Credit Management, a major buyer. “Where we stand right now, it’s certainly possible,” Tom Majewski, the $14 billion private-credit manager’s founder and managing partner, says in this episode of the Credit Edge podcast, when asked about the chance of negative returns. “While there were some credit problems, oddly the bigger issue was the bull market and repricing of loans,” Majewski tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Reto Bachmann. They also discuss software-loan stress, business-development-company turmoil, lower returns in significant risk transfers and how Eagle Point is diversifying into hard assets like midmarket infrastructure lending. See omnystudio.com/listener for privacy information.
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July 9 · 45 min
Sona’s CEO Sees ‘Exciting’ Growth in Asset-Based Finance, SRTs
Sona Asset Management is looking to expand its business in asset-based finance and significant risk transfers as public and private debt markets converge. “The thing that excites us the most is the scope for growth in ABF markets here in Europe,” Henrik Johnsson, the London-based hedge fund’s chief executive officer, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Aidan Cheslin in the latest Credit Edge podcast. “We really like SRTs, although spreads have obviously come in a lot over the last couple of years,” Johnsson adds. They also discuss how to short corporate debt, software-loan distress, secondary sales of private credit assets and investing in the AI boom. See omnystudio.com/listener for privacy information.
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July 1 · 35 min
SpaceX Bondholders Face Huge Key Person Risk on Their Elon Musk Trip
SpaceX bondholders are bolstered by a fat equity cushion, high-grade ratings and a relatively small amount of debt outstanding — but they depend on founder Elon Musk, according to Bloomberg Intelligence. “There’s a huge risk there, and the rating agencies have actually pointed this out in terms of governance,” Robert Schiffman, BI senior technology credit analyst, tells Bloomberg News’ James Crombie in this special episode of the Credit Edge podcast. “You’re absolutely on an Elon Musk trip — his vision and his ability to raise money is a large portion of this company right now,” adds George Ferguson, BI senior equity analyst for aerospace, defense and airlines. The trio also discuss poor secondary performance in SpaceX bonds, relative value compared with the equity, and credit-market risks if AI flops. See omnystudio.com/listener for privacy information.
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June 25 · 49 min
Europe's Largest Asset Manager Warns of AI Debt Deluge Crowding Out
Further acceleration in AI debt issuance has the potential to steer demand away from government bonds, according to Amundi, Europe’s largest asset manager. “At some point it could have a crowding effect, but we are not there yet,” Gregoire Pesques, the firm’s chief investment officer for global fixed income, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Tolu Alamutu in the latest Credit Edge podcast. “It’s a risk that we monitor,” says Pesques, whose company has $2.7 trillion under management. They also discuss value in corporate debt relative to government bonds, how G7 countries are behaving more like emerging markets and Amundi’s concerns about central bank independence. See omnystudio.com/listener for privacy information.
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June 18 · 45 min
Real Estate Is Next Bet for Debt Investors Avoiding Private Credit
Private credit disarray spells opportunity for housing giant Pretium, which targets high returns by lending to US homebuilders. “Our private credit looks a little bit different than other private credit in the sense that we are secured, we have real good downside protection,” Jon Pruzan, the company’s co-president, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Erica Adelberg in this episode of the Credit Edge podcast. “We have a lot of people who want capital and not a lot of people providing capital — that puts us in an opportunity to continue to generate attractive returns,” says Pruzan, who was previously chief financial officer at Morgan Stanley. They also discuss housing fundamentals, opportunity by region, how Pretium achieves midteens returns and political risks going into the November US midterm elections. See omnystudio.com/listener for privacy information.
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June 11 · 56 min
Oaktree Says Boring is Beautiful In Dicey Private Credit Market
Private lenders are going back to basics as debt trouble spreads, market participants tell Bloomberg News’ James Crombie in this special episode of the Credit Edge podcast. “Boring is beautiful, boring is better right now,” says Christina Lee, managing director at Oaktree Capital Management. The podcast also explores AI debt risks, software distress, how tight bond spreads can go and the state of US consumers with the following guests: Matt Brill, head of North America investment-grade credit at Invesco; Anish Shah, global head of debt capital markets at Morgan Stanley; Lotfi Karoui, multi-asset credit strategist at Pimco; Jody Lurie, Bloomberg Intelligence senior credit analyst; Na Wei, global head of leveraged finance at Barclays; Sheel Patel, head of Mayer Brown’s private credit practice in New York; Shalini Sriram, Third Point’s head of structured credit; and Scott Goodwin, co-founder of Diameter Capital Partners. Interviews were recorded June 3 at Bloomberg’s Global Credit Forum in New York. See omnystudio.com/listener for privacy information.
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June 4 · 46 min
Goldman Sachs Sees ‘Uncomfortable Tension’ in Credit Markets
Robust demand from pensions and insurance companies will support corporate debt through macroeconomic headwinds and record supply, according to Goldman Sachs. “Spreads are tight to the prewar levels when the facts on the ground have unquestionably become more challenging,” Amanda Lynam, Goldman’s chief credit strategist, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Robert Schiffman in the latest Credit Edge podcast. “That is this uncomfortable tension that we have in the credit market,” Lynam says. “Sentiment around the yield-based buyer is really in the driver’s seat.” They also discuss the AI funding boom, private-credit risks, CCC underperformance and where to find value in structured products. See omnystudio.com/listener for privacy information.
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May 28 · 54 min
Veteran ABS Investor Sees ‘Max Uncertainty With Max Complacency’
Bad software loans will cause credit-market trouble that recalls aspects of the global financial crisis, according to American Century Investments. “We call it max uncertainty with max complacency,” says Paul Norris, referring to tight credit spreads, in this episode of the Credit Edge podcast. “What’s interesting to me is the subprime crisis was very similar,” Norris, who leads the $330 billion asset manager’s securitized markets team, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Reto Bachmann. They also discuss growing risks to business development companies and collateralized loan obligations, advantages of public over private asset-backed debt and why residential mortgages are a buy. See omnystudio.com/listener for privacy information.
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May 21 · 42 min
Principal Sees High-Grade Downgrade Risk as Issuance Ramps Up
Blue-chip companies, including hyperscalers, may be jeopardizing their credit ratings by piling on debt, according to Principal Asset Management. “We have seen some downgrades, and I would expect that that would continue as borrowing ramps up,” Mike Goosay, the $600 billion manager’s global head of fixed income, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Julie Hung on the latest Credit Edge podcast. “I don’t think that’ll have a behavioral effect on the way that investors look at the market, nor does it — to date, anyway — change the borrowing costs of those corporates,” he adds. They also discuss the artificial-intelligence funding frenzy, why junk bonds are attractive despite macroeconomic risks and how global government-bond volatility affects demand for credit. See omnystudio.com/listener for privacy information.
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