(Bloomberg) – Ultra-low interest rates globally have triggered a new credit cycle for the leveraged loan market, with little chance of bogging it down anytime soon.
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That’s the sentiment of some of the biggest names in the $ 1.2 trillion market who spoke at a Bloomberg News leveraged lending conference on Tuesday. While the sense of risk aversion could create some volatility in the short term and default rates will eventually rise, fundamentals should be strong for the foreseeable future with significant distress in the distance, they said.
“It’s such a robust market as we’ve seen it,” said Mark Attanasio, co-founder of Crescent Capital Group. “And we actually think it all makes sense given the current yield situation.”
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“It really feels like the start of a new credit cycle,” said Lauren Basmadjian, co-head of liquid credit at Carlyle Group Inc. at the event.
Roberta Goss, co-head of bank lending platform and CLO at asset manager Pretium Partners, said it would be difficult to keep a default rate this low, but “for the foreseeable future, over the years. Next 12 to 18 months, the credit markets “will continue to be very attractive.
Nonetheless, the leveraged loan market as well as the $ 1.7 trillion high yield bond market will increasingly need to accommodate global concerns.
“The market has grown from being sort of a niche in the United States to a global market,” Attanasio said. This forces investors to consider everything that is going on in the world – from real estate companies in China to geopolitical issues in the Middle East – and factor that into a high yield bond to a syndicated loan to make a unitranche investment. he added.
But one area that is not of concern is the Evergrande debt debacle unfolding in China.
“For now – and I will say for now because these black swan events tend to surprise you – it looks like it will be more of a challenge for the financial system in China,” Attanasio said.
Attanasio also does not know of any peers who have these obligations.
Cade Thompson, Capital Markets Group Partner at KKR & Co, said his company was looking to take advantage of favorable market conditions to refinance the debt of some of the firm’s portfolio companies that have been hit hardest by Covid.
“We are really in tears since the Fed stepped into the markets,” said Thompson of KKR. “It’s hard to understand what will bring us down. “
Borrowers on Tuesday announced at least 13 transactions of high-grade and low-grade corporate bonds in the United States despite more relaxed issuance terms, a potential sign that surging Treasury yields are pushing companies to borrow now.
Order books for the $ 7.77 billion junk bond portion of Medline Industries’ record leveraged buyout funding program hit $ 23 billion in New York City on Tuesday morning, according to people with knowledge of the matter. .
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