Credit Exchange with Lisa Lee

• The ‘real economy’ of Europe needs financing – Arini’s Mathew Cestar

  “We know there’s a big pan-European need for financing,” says Mathew Cestar, president of Arini, one of the fastest growing alternative credit managers, on the latest edition of the Credit Exchange podcast with Lisa Lee.Cestar, who has more than 25 years of experience in European credit markets and once headed a major investment bank, details the evolution of capital markets in the region, from high-yield bonds to leveraged loans and now, private credit.“European companies have never really had a love affair with public capital markets, largely in the sense that they are cookie-cutter and often volatile. Many of these companies, particularly at the mid-size [level], tend to be family owned, multi-generational, and private – they require something much more bespoke, relationship-driven and meaningful,” he says.Via lending to the ‘real economy’, Cestar sees a significant opportunity across various sectors in Europe to go beyond lending to companies owned by private equity shops. And he discusses the recently-announced partnership Arini inked with Lazard – the first private credit and bank partnership of scale in Europe.“As global pressures apply, we’re seeing not just M&A activity rise, but essentially the streamlining and reshoring of European businesses, and so there’s ample opportunity for capital investment to facilitate that,” notes Cestar.

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• Paradigm shift in US economy lessens likelihood of tariff-induced recession – Sound Point’s Stephen Ketchum

  “We’re at a reasonable balance now.” That’s the view of Stephen Ketchum, founder and CEO of Sound Point Capital Management, regarding the state of credit markets in June on the latest edition of the ‘Credit Exchange’ podcast with Lisa Lee.Sound Point, an alternative asset manager with over USD 43bn in AUM, de-risked its portfolio earlier this year, when the firm felt there was a little bit too much optimism. It then added risk when sentiment skewed toward an excess of pessimism in April.“We are in a world where there’s been a real paradigm shift in the way that our economy works,” Ketchum said, on the fading worries about an impending recession sparked by the ‘tariff tantrum’. The US in particular, but the developed world more generally, have moved on from what was, decades ago, a manufacturing economy with somewhat-predictable economic cycles. The US is now overwhelmingly a service economy, Ketchum said. Because of that, the last 15 years has seen two recessions, both of which were “self-inflicted”.Tariffs will be a factor going forward. While Ketchum doesn’t expect that the US will impose 50% tariffs on friendly countries, there will continue to be negotiations, “so we’ll be prepared to manage through that,” Ketchum said. “The companies that we lend to will be prepared to manage through that.”But for its private credit book, Ketchum could neither de-risk, nor add more risk. The most important thing is to underwrite for years, make sure one backs companies that have high barriers to entry in their market, and most importantly, have management teams you trust will be able to pivot when they need to, he advised.

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• Not everything in private credit is rosy – Goldman Sachs’ James Reynolds

  While private credit broadly has showcased resilience and strength, “under the surface, not everything is as rosy,” according to James Reynolds, global co-head of private credit at Goldman Sachs. Reynolds spoke with Lisa Lee, managing director at Creditflux and editor-at-large at Debtwire, at this year’s Debtwire Private Credit Forum Europe in London on 17 June.Goldman has started tracking the debt-to-equity swaps in the industry because LPs around the world wanted to know what is really happening. Since 2017, the European direct lending market has seen around 120 debt-to-equity swaps across the industry – and interestingly, around half that number have occurred in the last two years.They tend to impact deals involving smaller companies from 2017, 2018 and 2019, and in more cyclical sectors such as consumer, retail and discretionary, Reynolds noted.That is resulting in real bifurcation in European direct lending. “You are going to start seeing dispersion in performance – it’s happening,” he said. “The question now that LPs should be asking is: what are the capabilities of direct lenders to go and own these businesses? It’s a different job than lending to a business.”Certain teams are going to come under pressure and there’s going to be more consolidation in the industry – indeed, it is already occurring. The landscape in direct lending in ten years’ time is going to look very different to today, with, in all likelihood, fewer, larger players, Reynolds said.

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• Investors optimistic, bullish on European structured credit – BofA, King Street, Blackstone, Federated Hermes

  The mood at the Global ABS 2025 structured credit industry confab this week was positive, according to bankers, asset managers and investors at the Barcelona conference. Taped (mostly) live in Spain, Credit Exchange host Lisa Lee caught up with guests from Bank of America, hedge fund King Street, Blackstone and Federated Hermes.Alex Batchvarov, managing director, global research at Bank of America: When we take a look at the macro picture, there are certain changes which are gathering speed, and I think to some degree – maybe to a large degree – are irreversible.The capital flows are changing direction. US exceptionalism is now being questioned.[For] the structured finance sector, there are not many reasons for concern with regard to credit performance or structures or documentations.Young Choi, global head of trading at King Street:The tone was relatively constructive. There seems to be a preference from the crowd in Barcelona for European credit versus US corporate credit.A couple of years ago if you asked that same question, it would have been reversed. There were a lot of things that concerned people about Europe. It hasn’t completely flipped, but I think the narrative has definitely changed.Alex Leonard, senior managing director and head of European liquid credit strategies at Blackstone:We're definitely seeing a lot more investors coming from wider locations. Previously it would have been primarily European-only. We’re now talking to Asian investors, Canadian investors, African investors, all wanting to discuss that opportunity in Europe with Blackstone. So I think that’s positive.We do clearly need to remain cautious, but certainly, looking at the fundamentals and the real data we’re seeing across all of our portfolio companies, we generally continue to feel good about European credit.Andrew Lennox, senior portfolio manager at Federated Hermes:There's a lot of issuance in the pipeline, both on the ABS side and the CLO side. We’re going to have a busy post-conference period.We’re starting to see some early signs of a pivot away from the allocations toward the US and investors looking for opportunities elsewhere, and Europe seems to be a beneficiary of that. It seems that Europe is picking up some momentum, whereas the US had it for a number of years. The US may be seen as a less reliable trading partner, but also as an investment opportunity.

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• The M&A market is normalising – Ares’ Matt Theodorakis

  The M&A market is normalising, said Matt Theodorakis, co-head of European direct lending at Ares, in the latest ‘Credit Exchange’ podcast, recorded at the SuperReturn International conference in Berlin, Germany.“People are looking to do deals going forward” after taking a pause following ‘Liberation Day’, Theodorakis told host Lisa Lee, managing editor at Creditflux.Investors – limited partners – are going to want to get paid back. In the next six to twelve months, their patience is going to wear thin, Theodorakis said. “People are going to really start to push and say, ‘Hey, guys, enough. There’s no reason not to start a sale process.’ We’ll actually enjoy the benefit of that.”Before that, 2025 started out as a strong year. Direct lending in Europe has been deploying almost 50% more than a year ago, and the use of proceeds for M&A has been increasing. Theodorakis is particularly extied about how artificial intelligence can impact the private credit business, particularly from the perspective of risk management. As a lender, Ares gets quality and frequently-updated information on their borrowers.“We’ve been doing a pretty good job of it, but if we can turn that info into machine learning [and] getting ahead of trends, that is an absolute game-changer.”

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