TEXPERS thought leaders offer insight on US credit market

In response to extreme market volatility resulting from the COVID-19 pandemic, the Texas Association of Public Employee Retirement Systems hosted a conference call with top investment experts to provide its members with insight into the US Credit Market. 

The conference call, held free to our members who registered, occurred on April 16 and provided insight and an early indication of what will happen in the broader economy. TEXPERS invited investment experts to share their thoughts regarding possible opportunities and discuss the current state of the markets in US High Yield, Bank Loans, Convertible Bonds, Asset-Backed Securities, Direct Lending, and Distressed Debt. 

For a replay of the conference call, click here. 

You'll hear from:

Summary of Discussion

Dorfman:

• US Financial markets are heavily reliant on the functioning of securitization for credit creation.
• CLOs buy circa half of the loans issued by PE companies. If the CLO market is not resuming, it will be meaningfully more expensive and difficult to finance those companies.  
• Structured credit market have been predominantly affected by unrealized mark-to-market on very low volumes as compared to credit impairments.
• Leveraged loan market is slowly reopening but at higher cost of capital consistent with the rest of the public market.
• It is expected that the weaker part of the market, i.e. over levered companies, companies which should not have been financed in the first place, will not survive this cycle. 

Slatky:

• Unlike the credit market sell-offs we experienced in 2002 and 2008, the capital markets have remained open for below investment grade companies allowing for significant capital raising.
• Following the market dislocation in March, we have now entered the credit selection stage. There is likely to be bifurcation between the “have’s” and have nots” defined as those companies that can access capital.
• As we head into a period of challenged economic conditions, we expect that a number of higher quality, “need-to-exist” companies will be forced into restructurings due to exogenous factors. We believe that being the provider of capital to these more robust businesses could offer very compelling risk-reward over the coming distressed cycle.