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News
News in brief
US credit returns fail to reflect risk
US corporate credit does not currently offer a sufficient return for the risk investors are taking, said Bryan Whalen, CIO of fixed income at TCW.
We haven’t seen the end of asset price volatility, Whalen said on an episode of the Credit Exchange with Lisa Lee podcast last month. “If that is true, we believe you are not being properly compensated for that in risk premiums.”
Markets have bounced back from the initial volatility caused by the 2 April US tariffs announcement, which unveiled a wide-reaching and punitive plan that surprised market participants. However, President Trump is still in the midst of tariff negotiations, and one can expect additional surprises from policy decisions.
Given these risks, investment grade corporate credit spreads should be paying 50% more than they are currently, Whalen said. IG bonds should be paying investors a 120bps spread, but they are only offering around 80bps.
Investors are generally optimistic, and a lot of capital has been chasing income, leading to incredibly tight spreads. But Whalen worries that another period of volatility and sentiment shift might dry up liquidity as investors scramble to get out.
“If we hit a period of economic decline and less liquidity, all that money going in the other direction can actually magnify prices to the downside,” he said.
Even with a softening in tariff assumptions, an economic downturn or slowdown is inevitable, but this is not reflected in market pricing, Whalen added. As a result, other areas of the credit market may offer a more attractive risk-return. These areas include mortgage-backed securities and high yield bonds in emerging markets.
Top stories on creditflux.com: lawyers leave A&O Shearman and LGT unveils Legato
29 May
Muzinich launches European CLO platform with Eagle Point
Privately-owned investment manager Muzinich is launching a European CLO business, extending its partnership with Eagle Point Credit Management. The platform has a team of 27 credit analysts and aims to create a multi-year issuance pipeline.
Brian Yorke: the New York-based portfolio manager, who joined Muzinich in 2021, is leading the European venture
1 May
Apollo Debt Solutions BDC prices its debut CLO
The fund, which launched in 2022, focuses on large-cap origination, BSL and middle market direct lending.
2 May
Sidley grabs CLO experts from A&O Shearman
Sidley Austin dramatically strengthened its US finance team by recruiting nine lawyers from A&O Shearman. Seven of the nine are structured finance and CLO attorneys in New York, led by partner Chris Jackson.
3 May
BMO Asset Management launches CLO ETF
The Canadian asset manager unveiled the market’s newest triple A CLO ETF. It will invest primarily in issuers outside Canada.
5 May
A&O Shearman exits continue as two partners jump to Proskauer
Leveraged finance partners Alexandra de Padua and Frank Oliver joined Proskauer Rose’s Global Finance practice in New York.
5 May
Apollo goes on post-Liberation Day spree
As volatility hit public markets, Apollo bought assets, deploying USD 25bn in April alone, according to CEO Marc Rowan on the firm’s Q1 earnings call.
6 May
Clearlake to chase private and public credit investments
The firm’s new Clearlake Credit platform will integrate the newly acquired MV Credit and WhiteStar Asset Management.
8 May
Macquarie issues debut US CLO
The Australian-headquartered firm priced a USD 409m BSL deal via Jefferies. It followed European manager Arini’s inaugural US print in April.
10 May
Clearlake abandons bank-led option for Dun & Bradstreet financing
Private equity firm Clearlake Capital Group has opted to borrow from private credit firms rather than tap Wall Street banks.
13 May
Former Barclays CLO head joins MUFG
Japanese bank MUFG appointed New York-based industry veteran John Clements as head of CLOs.
14 May
JPMorgan seeks to raise direct lending fund
The bank’s asset management unit is seeking capital from institutional investors.
20 May
Cleary hires for private credit team
Humayun Khalid has returned to Cleary Gottlieb after a stint at Goldman Sachs.
22 May
LGT launches European CLO platform
Swiss manager’s Legato business will be led by co-head of private credit Thomas Kyriakoudis.
30 May
Leaked EU draft proposal would make CLOs public
The European Commission looks set to propose turning CLOs into public securitisations.
Past returns
The reset revolution
Ten years ago, in May 2015, there were no CLO resets, because the technology simply didn’t exist.
Apollo Global Management introduced the world’s first CLO reset in June 2015. The technology took off, seeing rapid adoption by managers and investors alike, across both Europe and the US. The CLO market was transformed.
Given developments over the past decade, it’s hard to recall that CLOs had a fixed-term life — they would cease to exist at the stated maturity date. Now they can reset to extend their existence, sometimes twice or thrice.
Points up front
Ups and downs of public versus private markets
When global leaders gathered for the World Economic Forum in Davos, Switzerland, in January, the tone was enthusiastic, according to sources who attended. The US appeared to have pulled off a miraculous soft landing, managing to cool spiking inflation without causing a recession. The outlook for developed economies was solid and financial markets were booming.
Flash forward to the Milken Institute Global Conference in early May. US President Donald Trump’s unveiling of a new tariff regime on 2 April — ‘Liberation Day’ — had wrought chaos. Equities saw some of their biggest loss sessions in decades, and analysts upped the likelihood of an impending recession.
Nevertheless, markets soon recovered. The mood was uncertain, but many were hopeful that business would mostly progress as before.
But at SuperReturn in Berlin, a confab of the private capital community in early June, the tone had dipped again. The OECD lowered growth forecasts due to trade policy uncertainty. Moreover, the LBOs that fuel PE returns have cratered. Exits are difficult and distributions are at historic lows.
However, public markets are burning hot again. They have learned the TACO trade (Trump Always Chickens Out) and erased their tariff downdraft. The next few months will show whether private or public tone is more appropriate.
Berlin InterContinental: delegates at SuperReturn were in a dour mood due to falling PE returns
