Credit Spreads
Anyone in the credit world seeing peak tightness in spreads or having industry themes that look like coverage could deteriorate quickly (in addition to mortgages)? Retail? Banks/insurance? Thx
posted by Nomad-amus at
8:43 PM
2 Comments:
Keep in mind that I cover media, aero, defense, and airlines (along with some one offs) in high yield, but I think that, in general, there is still some room for credit spreads to tighten. I know that sounds crazy, but we are having trouble getting allocation in new deals and everyone in credit seems starved for paper. It is not unusual for their to be $2 bn in orders for a $250 million deal right now... in fact, we've put in for $15 or $20 million and been allocated as little as $250k. The bank debt market is even crazier than ours right now (I'm sure Kelly can weigh in). With deals (even terrible deals) routinely becoming 8, 10,or more times oversubscribed that would indicate that demand has not yet taken a hit.
There has to be some catalyst that drives liquidity away. Given that a lot of the money in credit is foreign, I just don't know that I see it yet. I feel reasonably confident that I surprised tightening by New Zealand isn't going to be the catalyst that collapses the global credit market.
Housing is a possibility, but it depends on the extent to which it infects the rest of the economy. Otherwise, I think we're going to need one catastrophic credit event... a major default, blown LBO, etc. and it has to be something of size. Multiple billions.
This is not my position but I overheard someone saying it:
"I do not see bank loan spreads going any lower.
There is a portion of them that are almost always covered i.e. 0 beta names that have 3 levels of sub debt. And they trade at 200 with covenants.
Many times if these have covenants they trade up in times of default making this the greatest asset class ever.
The current problem is if you have covenants you suck and if you are worth anything then you do not have covenants. The buyers of these all use leverage so they need a spread above borrowing costs. Hence where they are at.
Loans spreads are not tightening."
Once again, not my opinion, I do not speak for my firm or my job in saying this.
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