The Credit Edge by Bloomberg Intelligence – Details, episodes & analysis

Norinchukin Bank faces significant losses from the sale of US and European sovereign bonds that tumbled as interest rates rose, and other financial institutions may also be exposed. “The bank is still losing more than a billion dollars a quarter,” says Bloomberg Intelligence senior credit analyst Pri de Silva, referring to the Japanese agricultural bank also known as Nochu. “They need to rip that band aid off and address negative carry in the securities portfolio,” de Silva tells Bloomberg News’ James Crombie in the latest Credit Edge podcast. De Silva also weighs the outlook for Asia’s Additional Tier 1 bond market, where risk premia are shrinking as supply evaporates. Also in this episode, Mary Ellen Olson, senior credit analyst at Bloomberg Intelligence, discusses the turnaround at India’s Vedanta, which may tap the US dollar bond market, as well as the impact of China’s economic slowdown on Asian miners. 

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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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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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The best credit investments are in asset-backed securities, particularly those linked to US households, according to JPMorgan Asset Management. “We absolutely see opportunities for yield pickup there,” says Kay Herr, the firm’s chief investment officer for US fixed income, in the latest Credit Edge podcast from Bloomberg Intelligence. “The consumer’s going to be OK,” she tells Bloomberg News’ James Crombie and Bloomberg Intelligence Senior Credit Analyst Julie Hung. The CIO meanwhile flags potential risks building in private credit that could ripple through high-yield debt markets. Also in this episode, Herr and Hung discuss retail trends as high- and low-income consumers diverge. 

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US companies with about $200 billion in debt — 10% of the junk market — can’t survive at prevailing elevated interest rates, according to Bank of America. “At the bottom decile, we are looking at issuers that are in most likelihood not going to be able to come out of this high-rate episode without doing something to their balance sheet,” says Oleg Melentyev, head of US high-yield strategy at Bank of America, in the latest Credit Edge podcast from Bloomberg Intelligence. “Half of that segment is free-cash-flow negative unless the Fed cuts interest rates soon and deep — which is a pretty weak assumption,” he tells Bloomberg News’ James Crombie and Bloomberg Intelligence Credit Analyst Matthew Geudtner. Also in this episode, Melentyev and Geudtner discuss the outlook for companies in the commodity and capital goods sectors. 

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Invesco is buying real estate investment trust debt and preferred bonds from banks, betting that the US economy stays strong and interest rates eventually fall. “If you’re looking at yield, it is kind of a golden age for bonds,” says Matt Brill, the $1.6 trillion money manager’s head of North America investment-grade credit, in the latest Credit Edge podcast from Bloomberg Intelligence. “You’re getting paid to wait and at some point here, you’re going to get that kicker of the Fed starting to cut,” he tells Bloomberg News’ James Crombie and Bloomberg Intelligence Senior Credit Analyst Tolu Alamutu. Also in this episode, Brill and Alamutu discuss commercial real estate risks and opportunities as rates stay high. 

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Household debt is a good investment as the US economy remains strong, Jeremy Forster, portfolio manager at Wellington Management, says in the latest Credit Edge podcast from Bloomberg Intelligence. “We do still think that the US consumer is in really good shape,” he tells Bloomberg News’ James Crombie and Bloomberg Intelligence Senior Credit Analyst Arnold Kakuda. Forster expects “compelling” returns in fixed income for 2024, which he thinks will be the year of the bond. In addition, Wellington likes financial sector and electric utility debt. Forster and Kakuda also debate liability-driven investing and risk in the banking sector as interest rates stay high. 

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Rising private credit stress will inflict losses on investors and spur volatility, Jerry Cudzil, portfolio manager at TCW Group, says in the latest Credit Edge podcast from Bloomberg Intelligence. “Default rates are going to pick up in a really material way in private credit,” he tells Bloomberg News’ James Crombie and Bloomberg Intelligence Senior Credit Analyst David Havens. “We are currently seeing some real stress,” says Cudzil, who expects “accidents” as documentation weakens and pay-in-kind deals proliferate. Cudzil and Havens also discuss the broader financial markets implications of this turbulence, and how current leverage levels compare with 2007. TCW is underweight corporate credit but sees opportunity in collateralized loan obligations and agency mortgages.

Listen to this episode on Apple Podcasts and Spotify. 

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Western Asset Management Co. sees “compelling” opportunities in commercial real estate debt, Co-Chief Investment Officer Michael Buchanan says in the latest Credit Edge podcast from Bloomberg Intelligence. This includes loans for warehouses, distribution centers and hotels, he tells Bloomberg News’ James Crombie and Bloomberg Intelligence Senior Credit Analyst Stephen Flynn, adding that the firm is cautious on offices. In addition, Western Asset likes collateralized loan obligations and debt from companies in the communications sector. Also in this episode, Buchanan and Flynn discuss regulatory risk in mergers and acquisitions, and how investors navigate increasingly aggressive liability management transactions. 

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Altice ‘Jenga Tower’ Menaces Global Credit Markets (Podcast)Altice distress is ripping through global credit markets and setting some ugly precedents for debt investors. Aidan Cheslin from Bloomberg Intelligence joins Irene Garcia Perez, Eleanor Duncan and James Crombie with Bloomberg News to discuss the ongoing drama. Billionaire owner Patrick Drahi has taken a combative approach to creditors, who are joining forces in an effort to avoid steep losses. Credit rating downgrades and asset price falls at Altice France — which has more than €24 billion ($25.6 billion) in debt — make lenders cautious and undermine the ability of other risky companies to refinance debt. The French telecom is “teetering like a Jenga tower with unsustainable leverage and negative free cash flow,” according to BI’s Cheslin.

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