JPMorgan’s Aronov Sees More Junk Firms Struggling to Repay Debts

JPMorgan Asset Management is seeking hedges against credit market losses as risks rise and spreads tighten. “There’s value in shorts and credit protection,” Oksana Aronov, the firm’s head of market strategy for alternative fixed income, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Jody Lurie in the latest Credit Edge podcast. “It is very undervalued today because of the complacency in the market,” says Aronov, referring to the high-grade credit default swap index. Aronov and Lurie also discuss the increasing amount of bond and loan interest being repaid with additional debt, dwindling recovery rates, private debt convergence and high-grade opportunities.See omnystudio.com/listener for privacy information.

HPS Investment Partners is building out its fund finance business, including net-asset-value lending. “It’s a huge opportunity,” Purnima Puri, head of liquid credit and a founding partner at the $150 billion firm, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Tolu Alamutu in the latest Credit Edge podcast. “Exits for private equity sponsors have been somewhat limited and it’s one way to get some capital back to their investor group, which I think is super important,” says Puri. They also discuss how HPS is positioning for stagflation, the private-debt deal pipeline, relative returns, slim recoveries and liability-management exercise “brain damage.”See omnystudio.com/listener for privacy information.

Barings Sees Global Credit Investor Pivot to Europe (Podcast)Demand for European corporate debt is rising as global investors seek to diversify out of US markets, according to Barings, the $442 billion asset manager. “US exceptionalism is a little bit more questioned, investors are increasingly concerned about US economic policy,” Mike Best, a high-yield and senior loan portfolio manager at the firm, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Stephen Flynn in the latest Credit Edge podcast. “That will probably in the near term, create a very strong technical demand for European assets,” says Best, who’s taking more calls from investors seeking exposure to non-US markets. Best and Flynn also discuss risks and constraints in European credit, retail distress, communication sector winners and loser, plus how to trade liability-management exercises.See omnystudio.com/listener for privacy information.

When the credit cycle turns, “the game will be over” for some private debt funds that are overly exposed to weak companies, according to Silver Point Capital. “We see every deal that’s getting done — there’s some good deals and there’s some bad deals,” Michael Gatto, the firm’s head of private side businesses, tells Bloomberg News’ Irene Garcia Perez and Bloomberg Intelligence’s David Havens in the latest Credit Edge podcast. “If someone is doing too many bad deals, they won’t exist,” says Gatto, referring to what generally happens when debt market liquidity dries up. Gatto and Havens also discuss Silver Point’s approach to private credit, the growth of liability management exercises and disqualified lender lists.See omnystudio.com/listener for privacy information.

Collateralized loan obligations are a credit safe haven as highly-indebted companies get dragged down by economic slowdown, according to PGIM Fixed Income. “These structures are bulletproof,” Greg Peters, the $860 billion asset manager’s co-chief investment officer, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Matthew Geudtner in the latest Credit Edge podcast. “The loan market could really come upon hard times and these structures will be fine,” says Peters, referring to higher-rated CLO tranches. Peters and Geudtner also discuss how to profit from liability management exercises, private debt relative value and growing default risk in the consumer and hospitality sectors.See omnystudio.com/listener for privacy information.

Credit markets are rallying but there’s elevated risk of some companies not repaying debt, according to the Schwab Center for Financial Research. “There’s a sense of complacency,” Collin Martin, the firm’s fixed income strategist, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Himanshu Bakshi in the latest episode of the Credit Edge podcast. “Defaults are probably going to stay high,” says Martin, noting low interest coverage ratios among the weakest borrowers. Martin and Bakshi also discuss private credit risk, floating-rate and preferred debt opportunities, and the impact of trade wars on consumer confidence.See omnystudio.com/listener for privacy information.

Private credit may be hot, but it isn’t for all investors and doesn’t do better than traded junk debt, according to Dimensional Fund Advisors, which manages $790 billion in assets. “There is no outperformance relative to high-yield public bonds,” Savina Rizova, the firm’s co-chief investment officer and global head of research, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Jean-Yves Coupin in the latest episode of the Credit Edge podcast. “Some people might get disappointed with some of the attributes of private credit,” says Rizova, highlighting better liquidity and transparency in public markets. Rizova and Coupin also discuss Dimensional’s expansion into mortgage-backed securities, its active exchange-traded fund strategy and the firm’s overall credit exposure and positioning.See omnystudio.com/listener for privacy information.

Tariffs are inflicting economic damage that will force more companies to default on their debt, according to Polus Capital Management. “We do have a more substantial book of single name, high-yield credit shorts,” Robert Dafforn, the firm’s chief investment officer for opportunistic credit, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Tim Riminton in the latest episode of the Credit Edge podcast. “We think about it as the foothills before the mountain as you go on the slow ascent, and then it kind of picks up more broadly after that,” says Dafforn, referring to an increase in delinquency amid high interest rates and slowing growth. The CIO of Polus also discusses trouble brewing in the chemicals, building materials, packaging and consumer sectors, as well as “equity-like returns” for distressed-debt investors.See omnystudio.com/listener for privacy information.

Yield-hungry credit investors are increasingly seeking longer-dated corporate debt, just as supply is evaporating, according to Barclays. “It’s problematic,” Meghan Graper, the firm’s global head of debt capital markets, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Arnold Kakuda in the latest Credit Edge podcast. “I worry — can we source enough assets to appeal to where the bid is gravitating, and that’s out the curve.” Graper and Kakuda also discuss the growth of private credit, value in financial sector debt, hybrid issuance, the Trump put and league table rankings for global bond underwriters.See omnystudio.com/listener for privacy information.

Property markets are headed for trouble as the US economy slows and interest rates stay high, according to Hines, the global real estate investment manager.“We will probably see a bigger wave of assets in distress,” Alfonso Munk, who runs the firm’s debt business, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Tolu Alamutu in the latest Credit Edge podcast. “What I’m worried about is the operating distress if we get into economic headwinds.” Munk and Alamutu also discuss investment opportunities and risks by property type, region and country, as well as the impact of the trade war on real estate markets worldwide.See omnystudio.com/listener for privacy information.