Credit Exchange with Lisa Lee

Issues in the software space and a looming maturity wall will result in a return to more traditional distressed opportunities, says Jeff Kivitz, chief investment officer at Canyon Partners, on the latest episode of Credit Exchange with Lisa Lee.
There’s a wall of software debt maturities looming and while in the past these have “magically gone away, I think this wall is a little bit different,” Kivitz says. Eventually, the rubber will meet the road and there will be distressed and restructuring opportunities.
Canyon, a global alternative investment manager with $30 billion in AUM, is a firm to watch. While others are pulling back from lending to software, Canyon earlier this year led the arranging of a landmark $4.8 billion private credit loan in the space. Kivitz explains how they got comfortable with backing private equity shop Thoma Bravo as its portfolio software company Auctane merged with logistics provider WWEX Group.
In addition, Kivitz discusses how Canyon set up its new ABF unit, Canyon ABF Partners, with anchor investments from management, Daiichi Life Insurance and Korea Investment Holdings. He also talks about how Canyon nabbed credit market star Jay Kim, former CEO of Apollo’s ATLAS SP Partners.

“We’re starting to see some impact on cost. Very manageable, but it’s hard to ignore,” says Alex Chi, deputy CIO of global credit at Carlyle, one of the world’s largest investment managers with nearly $500bn in assets under management.
Speaking on the latest episode of Credit Exchange with Lisa Lee, Chi says that they are being very careful about how they underwrite new credits going forward. But new originations and investments stand to benefit from higher interest rates, he adds, as most of Carlyle’s credit holdings are floating-rate.
While Chi says consumer spending is holding up, particularly from higher-end consumers, Carlyle is staying away from credits that have significant exposure to discretionary consumer, “because we just don’t know what the impact’s going to be.”
Expect to see more defaults within the software landscape, says Chi, who is also head of direct lending at Carlyle. The vintages of late 2020 through early 2022 are especially problematic. If you look at the rates of default within those vintages, they have the highest percentage of non-accruals and defaults, he says.
“I think that we’re going to have to face the music at some point, because the maturity wall is coming,” Chi says. “And as a deputy CIO, I also think that could be very interesting for the opportunistic credit asset class.”
On AI, the software firms experiencing problems aren’t a result of AI disruption, Chi contends. “I actually think that you’re going to see more of an impact of AI from white-collar business services companies,” he says.

The Iran war is currently in a “mushy middle”, says Marko Papic, a macro and geopolitical expert at global investment research firm BCA Research, in the latest episode of Credit Exchange with Lisa Lee.
“[What] investors really have to focus on is not the verbiage, not the rhetoric, not the negotiations – but rather, the ships going in and out of Hormuz,” says Papic. While difficult to track, Hormuz has become a permeable membrane in the past few months. Combined with high oil reserves at the onset of the war, it’s helping prevent a calamitous global recession, and allowing time for the US and Iran to negotiate a truce.
Recalling Baron Rothschild’s famous utterance that you ‘buy on the sound of cannons and sell on the sound of trumpets’, Papic predicts problems for economies and markets after the conflict ends, with Europe probably already in a mild recession as a result of the war. Inflation will be stoked because government will attempt to refill depleted oil inventories, and the AI build-out is proving to be more inflationary than previously thought.
Papic, who is also the author of ‘Geopolitical Alpha: An Investment Framework for Predicting the Future’, also discusses mid-term elections in the US, the Federal Reserve, and China.

The US healthcare space is very interesting as far as real estate is concerned, says David Mihalick, co-head of global investments at Barings, a $500 billion alternative asset manager with expertise in credit, real assets and emerging markets. Mihalick points to demographic trends with an ageing population and the need for medical offices and senior housing as reasons why Barings is keen. “We think that creates a really compelling investment opportunity, and we’re looking to take advantage of that in our business.”
Mihalick, who once served as the head of private assets as well as head of US public fixed income and US high yield at Barings, expects to see more trading of private credit loans. On high-yield bonds, despite the low spreads, Mihalick contends that investors are getting appropriately compensated.
He also discusses infrastructure CLOs, a fairly novel structure that Barings is among the few firms involved in issuing, and private credit CLOs in Europe, where Barings is one of two managers currently issuing such deals.

“The dispersion in performance is becoming more visible, certainly to institutional investors,” says James Reynolds, global co-head of private credit at Goldman Sachs, on the latest episode of the Credit Exchange podcast with Lisa Lee.
“It’s clear, as you travel the world and speak to LPs, that there is a flight to quality happening. There is a flight to quality and scale,” he says.
The headlines around private credit are focused mainly on BDCs, which accounts for $400bn of the asset class and is located in the US. The distribution yields have come down, Reynolds notes, but they were perhaps inflated since, over the course of 2022 and 2023, interest rates went from zero to 5%. When the market dislocates, you tend to earn excess yield.
And there’s also momentum with institutional investors, who understand this is a pretty interesting moment to step into these markets, Reynolds says.
He sees opportunities “everywhere” – in direct lending senior, direct lending junior, capital solutions, anything around infrastructure, ABF, structured IG, and single-name corporate IG private. The first quarter of this year was the busiest ever for Goldman’s private credit team, and Reynolds expects the rest of the year to be busy as well.