Credit Exchange

• M&A rebound will come – Goldman Sachs’ Vivek Bantwal

  The expected M&A rebound may take longer to materialise, but it will come, Vivek Bantwal, co-head of global private credit at Goldman Sachs, said on the Credit Exchange podcast. Both public markets and private markets have a place, and in some areas, there’s been a blurring of the lines between the two, Bantwal told Lisa Lee, the managing editor of Creditflux.Given Goldman’s role at the centre of that ecosystem, Bantwal thinks it’s important they are able to show their clients solutions in both markets side-by-side.When underwriting new deals right now, look at how tariffs might impact. But what else are you looking at, Bantwal asks. What’s changed, given the new uncertainty that’s popped up in this world and in investing?The other part of the analysis, though, may not be so much related to tariffs. If you have an economic slowdown or a recession, how is that management team planning to weather the storm? What do you know about their supply chains, what they do with their marketing or their capex plans? Staying close to your management teams and understanding their plans for how to navigate all that is a really important part of the underwriting process, Bantwal emphasises.There’s also opportunities in hybrid – the type of capital that sits in-between debt and equity and is very flexible. Hybrids can be used in a variety of ways, Bantwal notes – especially given the challenges in the private equity community to exit in the current environment.

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• Trump tariffs will materially impact credit, raise financing costs – Napier Park’s Jon Dorfman

  The Trump administration chose a shock-and-awe approach to begin tariff negotiations, and backpedalling from the more extreme stances is the right decision, said Jonathan Dorfman, co-founder and CIO of alternative credit manager Napier Park Global Capital, on the latest ‘Credit Exchange with Lisa Lee’ podcast. Regardless, it’s clear there will be some tariffs, and credit investors should take that very seriously, Dorfman told Lisa Lee, managing editor at Creditflux, in a podcast taped 9 April.Companies in the non-investment grade space that are exposed to tariff risks are looking at survival or no survival. Defaults will be higher. Companies will find it harder to get financing and face higher cost of capital due to the big movement in the long end of Treasuries, combined with widening credit spreads, said Dorfman.The violence of the market movements will create more uncertainty at the corporate C-suite, as well as among consumers, who have already been psychologically damaged. All that risks slowing down the economy pretty meaningfully, cautioned Dorfman.Credit markets so far have softened, but not materially. That’s because of the Federal Reserve. If these market moves had happened five or ten years ago, the credit market would have completely collapsed. What’s changed is the base rate. There’s very little leverage in credit markets, which means no margin calls. No margin calls means no forced selling. Because most credit buying has been based on gross yield, unlevered buying, the system has held up pretty well, Dorfman said.

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• Best time for private credit is during market volatility and dislocation – Arcmont’s Mattis Poetter

  For private credit, the best dealmaking times are when there’s more volatility, says Mattis Poetter, chief investment officer of leading European private credit firm Arcmont Asset Management, on the latest edition of the ‘Credit Exchange with Lisa Lee’ podcast. “Volatility is generally a very good thing for us in terms of dealmaking and new underwriting,” Poetter told host Lisa Lee, managing editor at Creditflux. Private credit in the past five years has really expanded market share in periods of dislocation.Though still too early to really tell, if there’s more volatility in public markets and increased credit spreads, Poetter can see substantial capital withdrawing from the liquid market and private credit market in Europe, which are much smaller and more inefficient compared to their US counterparts. That would be very good for the large, incumbent European players.Poetter points to 2022 and 2023, when Arcmont saw a vanishing of competitive intensity in Europe. Capital in the European middle market was very hard to come by, liquid markets were shut, US players focused on their home market, and small European lenders struggled to fundraise.The drawback with Trump tariffs is the possibility they will damage the economy or reduce certain trade flows and negatively impact the portfolio of existing loans, Poetter says.

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• More volatility, more uncertainty and more tailwind for private credit: KKR’s Dan Pietrzak

  The markets are experiencing a bumpier road than expected on January 1st, said Daniel Pietrzak, global head of private credit at KKR, on the latest issue of the Credit Exchange podcast. Markets have shifted in the past eight weeks, or from the election in November, but the economy still remains in pretty good shape, Pietrzak told Lisa Lee, managing editor at Creditflux. KKR is starting to see a couple of places where they can step in, and perhaps get terms and conditions or pricing that didn’t exist a few weeks ago.These types of markets, when there is volatility, are when private credit should be able to shine. It provides a good tailwind, said Pietrzak. M&A and LBO financing activity hasn’t been as busy as Pietrzak had guessed in November, when the world was coming around to the idea of the Trump presidency being arguably pro-business, pro-deal, and anti-regulatory in some way. Instead, markets have become focused on tariffs and the uncertainty with the knock-on effect of a 'wait-and-see' approach on sale processes. Still, KKR’s private credit team is probably busier than they've been throughout 2022, 2023 and 2024.Pietrzak does worry about what the impact could be over the medium-term. Does this trigger some type of recessionary concern? Does it impact the consumer and their related spending? For Europe, though, the narrative has turned on its head. The markets are getting excited about government spending and the multiplier effect of that, and what that can mean for economic growth.

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• Compelling opportunities in CLOs, high-yield bonds – Bain Capital’s John Wright

  Recent volatility has opened up fresh opportunities in credit, says John Wright, global head of credit at Bain Capital, in the latest “Credit Exchange” podcast. Wright spoke with Lisa Lee, the managing editor at Creditflux, on his expectations for spread direction – wider, he believes – and compelling opportunities in both public and private debt.“Uncertainty begets wider spreads, and wider spreads beget more yield and more opportunity,” says Wright, with volatility being good for credit markets and for investing. While difficult to gauge the short-term, Wright believes that, over long periods of time, allocating to credit and holding through market volatility outperforms being in and out of the market.Wright is seeing opportunities in high-yield bonds and CLOs. Bain, which has $53 billion in credit assets under management, is “pretty excited” about CLO debt, as spreads are widening and expected to continue doing so. There are compelling opportunities on the CLO equity side, he believes. Bain is also getting involved with European CLO junior debt, since it has moved a little more quickly than the US equivalent.On M&A, “the pendulum has swung back the other way” given from heightened expectations after Trump’s election, Wright notes. But he still expects to see an uptick in M&A activity relative to the last two years, and a resumption of normal M&A activity. That will lead to loan origination.Wright says corporate default activities are at relatively elevated levels. He advises looking beyond the headline default rate that shows historically low levels. The true default rate when accounting for such things as LME (liability management exercise) transactions is higher: “we're closer to three or four percent, which is a reasonably elevated level as it relates to default activity,” he says.

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