February 27, 2025 • 46 mins
The best credit opportunity lies in middle-market collateralized loan obligation equity, according to Carlyle. “It is a newer market and not everyone’s investing and chasing that asset class,” said Lauren Basmadjian, the firm’s global head of liquid credit. “We’re seeing mid-to-high teens IRRs,” Basmadjian tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Mike Campellone in the latest Credit Edge podcast. That compares to 12%-13% internal rates of return from CLOs backed by broadly syndicated loans, she adds. Basmadjian and Campellone also discuss growing risk from liability management exercises, private/public debt convergence, default rates, M&A and European leveraged loan market opportunities.
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:17):
Hello, and welcome to the Credit Edge, a weekly markets podcast.
My name is James Crumbie. I'm a senior editor at Bloomberg, and.
Speaker 2 (00:23):
I'm Mike Campbelone, a senior credit analyst covering high yield
and investment grade retailers at Bloomberg Intelligence. This week, we're
very pleased to welcome Lauren Bez Maijin, Global head of
Liquid Credit at Carlisle. How are you, Lauren, great?
Speaker 3 (00:36):
Thanks for having me.
Speaker 2 (00:38):
Lauren is a partner in Global head of Liquid Credit
within Carlile's Global Credit Platform and CEO of CCIF, Carlile's
closedn fun focused on investing in equity and junior debt
tranches of colos. She's based in New York and sits
on the firm's liquid and private Investment committees. Carlile's Global
credit platform with about one hundred and ninety two billion AVASA.
(01:00):
It's under management spans across liquid credit, private credit, real assets, credit,
and other platform initiatives. Their liquid credit business has almost
fifty billion of assets under management and is responsible for
Carlisles COLO Management, COLO Investment and senior secured revolving credit
facilities of non ig issuers. James why don't I hand
it over to you to get us started.
Speaker 1 (01:21):
Yeah, and I'd also note that Lauren's a bit of
a legend on the COLO scene of frequent speaker at
conferences who has been right about the proposition that collateralized
loan obligations are actually a pretty safe bet for credit investors.
So we'll get into that a bit later on in
the show, but before we do it, just a few
words on what we're seeing right now at Bloomberg News.
Markets are getting whipsored by trade wars that will probably
fuel inflation and fears about the sustainability of the US
(01:44):
economic growth. Both will be very bad for credit, and
prices have dropped a bit over the last week. Leverage
loans are at a three month low, but corporate debt spreads,
which we use as a proxy for risk, are still
pretty close to where they were in two thousand and seven,
just for the global financial crisis. If you only looked
at market pricing, think the world was quite a peaceful,
calm place, nothing much to worry about. But news headlines
(02:04):
show the opposite, from radical policy shifts in the US
to ongoing military conflict, stubborn inflation, and declining consumer confidence.
Plus a ton of uncertainty about what the Fed may
do next with rates. There's a wall of worry, but
also a ton of complacency in markets, and we continue
to see very robust investor demand for corporate bonds and loans,
especially in the US. Not a lot of net news
(02:24):
supply though, that more than anything else, may be keeping
valuations high. So, Lauren, what's your take. Should we focus
more on the apparent pro growth focus of the new
administration and all the businessmen in it, or do we
still need to worry about trade wars, policy overhauls, and
geopolitical headwinds, or you know, should that be more in
the price?
Speaker 3 (02:43):
Sure? Yes, so we should. We should worry. We're credit people.
We have downside because most of what we buy is
near par so we have to think about how do
we protect that? And there is more uncertainty in this
environment where we're unclear where policies shake out. There's probably
more stroke with a pen risk than what we normally
(03:03):
operate with, so I think, especially given the really tight
spread environments pretty much across all of fixed income, not
just leverage loans and colos, you're not really getting paid
to take the incremental risk. So finding good companies that
can withstand volatility and exiting the weakest of companies that
(03:24):
if there is a policy change that should affect them,
they could they could really have financial difficulties. I think
is the right play right now.
Speaker 2 (03:34):
And then Lauren, obviously there's been tremendous growth in private
credit markets in recent years. You know, do you see
that trend continuing and our public credit markets getting crowded
out by the availability of private credit.
Speaker 3 (03:47):
I do see the trend continuing because there's a lot
of demand for private credit, and there's a lot of
demand for below investment great credit to begin with right now,
especially floating rate. And why is that? Well, you know what,
the inflationary environment's not terrible for below investment grade corporate credit.
(04:07):
We haven't reached the two percent inflation target. We're in
the mid threes instead. But what does that mean. One,
it means that our companies are probably growing a little
more than they would be if the environment wasn't inflationary.
So maybe you're picking up another point or two in
epit dog growth or sales growth. But at the same time,
because you have the inflation worry in the background, it's
(04:32):
likely that rates remain higher for longer, so you're getting
paid more on a floating rate asset class. So I
actually think the environment for total return investing in credit
looks pretty pretty attractive versus other classes. So let let's
get to your actual question of what does that mean
for private versus public. I think there's going to be
(04:54):
demand for both. They're both floating rate asset classes lending
to below investment grade on a first lean basis, and
I really don't view it as competition. I thought it
was very complementary to have direct lending step in when
the banks were having trouble underwriting or just weren't underwriting.
Direct lending has raised so much money that they could
(05:17):
do really big deal sizes today versus five or ten
years ago where they couldn't write the same type of
check that a BSL investor can. So giving lenders options
and having more availability of credit is a good thing
for all of our markets. And I think you're starting
to see more and more convergence where loans or borrowers
(05:38):
are moving in and out of each market depending on
what their goal.
Speaker 1 (05:43):
Is, And as an investor, where's the relative value Right
now between the.
Speaker 3 (05:47):
Two, we're seeing significant spread compression in both right now,
So you could probably put together a performing portfolio of
bsls in the three two any spread context where you're
looking closer to five hundred for for direct lending, so
you're still getting a meaningful pickup, though that that pickup
(06:09):
has has certainly declined over the last couple of years.
One thing that I think is pretty interesting and is
a market that still has room to grow is middle
market COLO equity. Uh. There actually seems to be pretty
good relative value there because even those spreads have compressed
(06:29):
in both the BSL asset side and the direct lending
asset side. Still of the liabilities and the arbitrage that
a middle market COLO can create based on where those
liabilities have now compressed to, I think really offers a
meaningful pickup to most most other fixed income markets.
Speaker 1 (06:49):
I do want to get to clos and more detail,
but for you just sort of back up into the
private credit because that's what everyone wants to talk about
right now. And it's interesting. You're seeing this convergence and
this you know, reduction in spe of direct versus broadly
syndicated loans BSL. Does that compression continue?
Speaker 3 (07:06):
Do you think?
Speaker 1 (07:07):
And what's what's causing it.
Speaker 3 (07:09):
I think it's gonna be hard to compress much more
from here. We are seeing new issues new issue loans
come at post financial crisis tights. It doesn't mean that's
where the market is trading, because there's still some tail
in the market if you look at the index. But
based on performing credit in the BSL market, we are
seeing B three's price at three hundred some even at
(07:33):
two seventy five, B two's two fifty two seventy five,
and new issues, so I don't think there's going to
be a ton more room for spread compression. That said,
most of our market is an arbitrage market, so if
we see significant tightening and co los spreads, it would
make room to tighten more on the asset side.
Speaker 1 (07:55):
And also the compression between the broadly syndication and private
does that keep getting squeezed the gap between directs and syndication.
Speaker 3 (08:03):
I actually think there's a little more room to go there.
With how much dry powder there is in direct lending
today and how much demand there is, and just not
a lot of new loan formation in either market, you
probably have some more room on direct lending compression.
Speaker 1 (08:19):
It's interesting what you say about them being complementary. Does
that remain the case. I mean, it seems like private
credit came in when when public markets would kind of
shut down, and you know, there were four borrowers that
didn't really have great access and they had to pay
up to get that access and for faster execution in
certain situations. But is it just a market for the
bad times or is it Why do you think it's
(08:41):
here to stay?
Speaker 3 (08:42):
No, I think it's here to stay. I think it's
completely complimentary. For example, you would think that you're you
would be seeing one direction right now, meaning larger issuers
that had issued loans into the private credit market would
come and refinance into the BSL market and get a
nice so for plus three twenty five loan versus the
(09:05):
five point fifty or so they were paying. And sure,
we are seeing some of that, some of these companies
that have grown through acquisitions and their ebatahs bigger and
they could get a much cheaper rate in the BSL market.
They're doing that. But we're also seeing performing loans that
trade it par with tight spreads move into direct lending
(09:26):
out of BSL. And why is that? It's because the
BSL market's a rating constrained market. We go back to
the COLO thing. You get clos or the main buyers.
They have a lot of ratings constraints, but you could
probably take a bigger dividend that may have been rated
triple C if you did it in the BSL market,
(09:47):
and take it to an unrated market for a really
strong company that may be still producing cash flow, and
you put on extra a couple turns of leverage that
they could support but not get a triple C rating,
or the buyer is not asking for rating. And we've
seen a couple of multi billion dollar deals come out
of the BSL market year date, performing credit pay a
higher interest rate, but decide to go to direct lending
(10:10):
because they could issue more attractive terms for what they're
looking for.
Speaker 1 (10:14):
And that doesn't worry you in terms of you know,
all this risk building up in the shadows. You know
that's potentially unregulated, and you know, we can't really see
how it's actually marketing to market if even is. I mean,
do you worry about the growth there?
Speaker 3 (10:28):
I think that for a while, we would hear people
say that direct lending has zero defaults, and that just
can't be true. It's a lower rated asset class than BSL.
Of course, they have more partnerships with the sponsors than
you see in BSL, so there's more room to negotiate
(10:49):
and keep companies liquid and out of bankruptcy. But over
time it's a below investment great asset class, there will
be defaults and we're seeing that right. We didn't see
a ton during COVID, but you are seeing with higher
interest rates for multiple years now that depending on what
data you're looking at. You could look at a Lincoln index,
(11:11):
or you could look at you through your own portfolios,
you're starting to see some defaults. I think it looks
more like the BSL market, even though it's a lower
rated market. So maybe we average somewhere around two percent
constant default rates going forward. Of course peaks and troughs
within that. Why would a lower rated market or lower
(11:33):
quality market have a similar default experience as as a
higher rted market. And I think that really does go
to the partnership with sponsors and direct lending and the
ability for a small group of lenders to negotiate terms
and offer pick interest for example for a period of time,
or sponsors actually putting in equity capital, which you've seen
(11:53):
in direct lending much more than BSL and tighter documentation.
So I think some of the market technicals they compensate
for the lower quality. And my prediction at least is
that we'll see pretty similar default rates in both markets,
though not zero anymore for direct lending.
Speaker 2 (12:12):
Yeah. And on a similar note, Lauren, you know liability
management exercises have been on the rise amongst stress creditors.
Is this activity a healthy thing for investors or a negative?
Given that that outcomes can vary amongst investors of the
same creditor.
Speaker 3 (12:28):
Class, well, as a loan peerist, you have to think
that it's not a good thing. I think a lot
of us have trouble thinking about how debt could be
taking a haircut before equity. Equity is supposed to be
the first loss, and oftentimes you see sponsors or companies
come back to lenders and say, well, I'm not taking
(12:49):
a loss, but because your credit agreement is so loose,
I'm going to strip assets or drop down assets unless
you take a haircut or you extend me more money.
That's not the way our market has historically operated. And
it feels like a sea change. It's a sea change,
really that that's there were some of these that had
(13:10):
famous names, and there's a ton of press about you know,
five years ago or ten years ago, and now they're
commonplace over the last year and a half or two years.
So overall, it really does dilute the quality of the
BSL market. There's a higher likelihood that you will be
(13:30):
asked to take a discount on something, even if that
company doesn't really have to file for bankruptcy, right they
could take advantage of the documentation. The companies and sponsors
are not being punished for this behavior. So that makes
me believe we continue to see it. When loans trade
at eighty or eighty five cents in the dollar, advisors
are being really aggressive and reversing these ideas in so
(13:51):
even if it's not the company's idea, it's being put
in front of them as an option. So I think
it's here to stay. So the next question is what
do you do if you believe that this is the
new normal for the leverage loan market, And then I
think you have to invest behind it. Right, you need
the capabilities to make sure that your size matter, your
(14:13):
voice matters. You have the right people on your team
that have the capabilities to negotiate these these transactions, because
more so than ever, you will see the same exact
loan owned by let's say two different managers recover something
totally different, and I think that's going to be a
(14:33):
differentiation in performance for loan managers going forward.
Speaker 2 (14:37):
Absolutely fair point. And then you know, how does Carlisle's
platform differentiate itself in that regard, you know, especially as
we move out of a cycle of the court bankruptcies
and into Lem's.
Speaker 3 (14:47):
Yeah, so soze size matters and size helps, and we
are the largest BSL manager there so even if we
don't have a big position in one fund, the fact
that we manage close to one hundred clos adds up
to a large position in most things. So our voice matters,
and we've really invested behind this theme. We've now built
(15:08):
out a six person team that is solely dedicated to
working on transactions where we're looking at or restructuring or
LM in and out of court.
Speaker 1 (15:19):
But how do CLOS participate, I mean, are they adding
new language to the documentation?
Speaker 3 (15:25):
Yeah, I'd say we've seen a lot more flexibility in
language over the last five plus years in CLOS. Really,
as even debtholders are acknowledging that this is an important
capability to protect value within the CLO. I think there
was a there was a perception that clos are being
taken advantage of for a lot of their history. That
(15:47):
was more from the hedge fund community that would learn
what the documents would look at and how to structure
something around them. That also feels like a bit of
a change now as a lot of the map who
are leading these strange actions though not always but but
commonplace now is for par colo buyers or just par
(16:08):
loan buyers to be very active in these processes and
figuring out how they want them structured.
Speaker 1 (16:16):
And to Mike's point, I mean you, as Carlile, how
do you make sure you get the better recovery if
you know there are two outcomes on the table.
Speaker 3 (16:23):
Yeah, you have to make sure you have the right
expertise and you're forcing your way into the right group
if it's a non proredd of transaction. That's my thesis
that that's what I believe is happening. We're seeing just
more and more of these as soon as the loan
price is trading again eighty five eighty. They're rumblings, and
(16:48):
what happens is you see more volatility in the in
the loan prices. And why is that It's there's now
this uncertainty premium that you need because before you would
be able to have a really good call on an
asset and say, well, it's trading at seventy five, but
I believe in the management team they're going to turn
the company around. It's power paper and you may be
(17:09):
right on that, but that doesn't mean that you don't
have process risk in between the two. And so that
process risk deserves a premium or a risk premium in
our market. You don't adjust it with the spread. There
is a spread is the spread, so that means there's
more volatility in the price.
Speaker 1 (17:25):
Right. Yeah, Our last guests actually from PIMCOD described this
whole situation as a knife fight between creditors. Hopefully it
doesn't get worse, but there seems to be no punishment
for engaging in it, either on the borrow or the
advisor side, so it seems that it probably will get worse. Right,
But turning to clos which you know we talked a
(17:46):
bit about the beginning. There has been a record year
you know behind us for issuance and resets. A lot
of people expect another record year for primary volume this year,
do you share that view? What's your forecast?
Speaker 3 (17:59):
Well, we are starting twenty twenty five pretty much where
we left off in twenty twenty four, with pretty significant
co low volume. New issue volume is down year over year.
I think that's because asset prices have been so high,
so it takes longer to create new issue by sourcing
primary loans versus more in the secondary. But resets have
(18:21):
really stepped in because you don't need a lot of
new assets for resets, so you've seen significant reset volume,
and I think I think new issue volume is going
to pick up as a lot of these warehouses get
to let's say, fifty percent of the target value in
primary loans. There are a lot of estimates out there
that suggest that we'll have another record year or record
(18:43):
breaking year. It feels like that right now, But I'll
be a little contrarian in that there's probably going to
be more volatility this year than there was last year.
The markets, the fixed income markets just feel very much
priced for perfection, and we're seeing there's just more risk.
And you opened with a number of those risks when
(19:04):
we started this conversation. So last year we had almost
no volatility. I would expect pockets this year. And what
do pockets of volatility do. It slows down issuance.
Speaker 1 (19:15):
And that just means tight to spreads, right, tighter spreads
on the clos.
Speaker 3 (19:20):
Well, we're tight. We're tight right now. Really, if you
look at where we are since the financial crisis on
a weighted average cost of debt basis, we're near all
time tights. So triple as are not at tights yet.
That said, I don't know that we close much tighter
than where we are today depending on volatility. We have
(19:42):
seen over the last let's say a week or so,
a little bit of widening in the way to average
cross the debt. I think that just comes with the
macro volatility. Seeing the stock market have some down days,
some of these headline risks, and people taking a little
bit of a step back, and that's just a microcosm
(20:02):
of what could happen throughout the year. So maybe we
end up close to where we are right now by
year end on spreads, maybe we're a little bit tighter
or wider, But I think there's just going to be more.
There will be times where we'll see more about volatility.
Speaker 1 (20:20):
My colleague Charlie Williams over and bloommig News. He says
for a standard five year reinvestment and two year non call,
it's around one fifteen one twenty now over sofa And
when we had three month libel, a few deals got
under one hundred. Maybe that was you know, five years
ago or so. Do you think we'll end the year
then around one fifteen? Still?
Speaker 3 (20:41):
Oh, my crystal ball is not is not that clear?
But yes, I think we probably end the year inside
of the one fifteen where we are now.
Speaker 2 (20:51):
And then Lauren, you know, middle market COLO involvement has
been an area of significant growth. Is that something you
know your business of Carlisle is involved in and what
do you what do you seeing there?
Speaker 3 (21:01):
Yeah, so Carlisle has a meaningful direct lending business. We
have issued middle market clos in the past. We did
a new issue middle market COLO last year in a
reset of an older one as well. So it's an
area that we're spending significant time on as I think
there's going to be more traditional COLO buyer interest in
(21:22):
having a pocket for some exposure to middle market clos
going forward.
Speaker 2 (21:28):
Fair enough for then you know, kind of switching gears.
You know, COLO ETFs have grown considerably over the past
two years. You know, what do you attribute this growth
to and is it a net positive for financial markets?
Speaker 3 (21:42):
Yeah, really significant growth. I think that part of it
is just demand for floating rate asset class, and so
you can invest in in the COLO Triple A fund
and get a spread over a nice floating rate base rate.
And when retail investors are looking for products that don't
(22:05):
have a lot of volatility that have performed, I think
there's and have a decent current yield. I think that's
created a lot of flows into the triple A product.
There will be more volatility on the MEZ products, the
ones that buy double b's and triple b's, But I
do think it's a positive for the retail investor to
(22:25):
have access to what had traditionally been institutional products. And
when you look at the COLO debt tranches, it could
be anywhere from triple as down to double b's. And
then you look at similarly rated asset classes, you see
better default histories, better sharp ratios, better current yield, better spread,
(22:51):
better total return. The most other comparable asset classes are
similarly rated asset classes, and yet the retail investor just
never had access. So I think I think it's a
really good I think it's a really good development for
the market. Clearly, that creates more demand and leads to
spread tightening, which is nice for CLO equity. At some
point there will be outflows though, and and I think
(23:15):
I think that will be an interesting thing for the market.
We haven't seen seen that happen yet, but that probably
also creates opportunity.
Speaker 1 (23:22):
I remember when the first ETF for CLOS was discussed
years ago and I mentioned it to someone. They said,
You're You're crazy. There's no liquidity there. What are you
talking about? So why why does this work?
Speaker 3 (23:34):
Now?
Speaker 1 (23:34):
I mean you your your title liquid credit clos. How
does that fit in? Why is it liquid? And how
liquid is it?
Speaker 3 (23:41):
Yeah? So the SALO markets are trillion dollars and you
have about sixty percent of that in triple A. Is
that's a pretty big asset class and a pretty liquid
asset class. Liquid, or at least the way we think
about it, Carlisle is tradable, something that you could buy
or sell any day that you walk into the office,
and COLO triple as certainly fit that bill.
Speaker 1 (24:00):
So if I'm a you know, I don't know how
much money I have to put in as a retail investor.
I'm for disclosure, I'm not invested in the COLO market.
But if I put a thousand dollars in, can I
get it back out tomorrow if I want?
Speaker 3 (24:12):
It? Settles T plus one?
Speaker 1 (24:14):
Okay, amazing. The other thing you talked about was equity.
You know, not all of our listeners will be familiar
with CLO equity and how it works. You know, we
mostly have debt investors and listeners here. But how does
that work and why does it still work in this environment?
Speaker 2 (24:32):
Sure so?
Speaker 3 (24:33):
So COLO equity is basically an arbitrage product. What a
COLO does is it lends to a bunch of below
enverestment great corporate credits. They are highly diverse collateral pools
by issuer and by industry. So for example, you can't have,
depending on the COLO document, more than between twelve and
(24:54):
fifteen percent in any one industry. So even if you
love oil and gas and we went through another oil
and gas cycle, eighty five percent of your portfolio will
not be tied to that negative industry trend at that time.
And that's why colos have worked so well over twenty
five years. Is unlike CDOs or mortgage securitizations. They're not
(25:17):
tied to just one industry or real estate. They're tied
to the US economy as a whole, with lots of
different lots of different industries and borrowers inside. So the
typical COLO will have two hundred and fifty three hundred
different below investment grade corporate names in it, and we're
talking about average, but DI have like seven hundred million
dollars or something along those lines. So these are really large,
(25:41):
large companies that colos are lending to. So they lend
to the companies, they get an average spread from lending,
and then they issue liabilities at tighter spreads, so you're
borrowing money at a cheaper rate to lend it at
a more expensive rate. You're levering that structure, and all
of the resis visual cash flows from the difference between
(26:02):
what you're borrowing at and what you're lending at go
to the benefit of the equity investor, and that creates
really high cash on cash profiles compared to other compared
to other products. But the equity is also the first loss.
So any default you take, any trading loss you take,
will hit will hit the equity return. So oftentimes you'll
(26:25):
receive higher cash on cash, but you have to think
about what loss you will take at the end because
there will be defaults or losses over a period of time.
Speaker 1 (26:36):
How much have they lost if they've been terrible victims
of various cycles, or have they came up Have they
come up pretty pretty strongly?
Speaker 3 (26:45):
Yeah, So it depends. That depends on the vintage. I
think there's there are stronger vintages and weaker vintages. The
rule of thumb is you're supposed to assume that there's
a two percent constant default rate in a CLO and
you recover sixty cents on that. Realistically, you don't really
have a constant default rate. You have times when they're
high default rates and times when there's close to zero
(27:07):
default rates. What I think surprises a lot of people
when we talk about colos is some of the strongest vintages,
for example, was right before the financial crisis. How is
your strongest vantage of col IRRs the ones that are
issued in two thousand and seven, and then you went
to nine percent defaults the next year, But it was
because that locked in capital cheap cost to capital that's
(27:31):
non marked to market, so there's no foreselling and then
you have a reinvestment period. So even at times when
there's high defaults, when you get pre payments, then you're
reinvesting those prepayments at cheaper dollar prices, higher spreads, and
it starts to build back what you may have lost
from the defaults. So you actually will see pretty good
(27:52):
returns from colos when they're issued right around a time
of volatility.
Speaker 2 (27:58):
And Lord buying non Carlisle managed colos is a part
of your business. You know, what's your involvement in that
aspect of the business and what is the process like
for you when you're deciding what looks interesting and what
you may pass on.
Speaker 3 (28:11):
Yeah, so we all sit as one team, between the
COLO tranch investing team and our analyst team, and I
think it's really valuable because we actually can understand the
risk inside those portfolios. So I will sit on the
investment committee for the tranch investing teams, and at times
I could look at a portfolio and say, I know
(28:32):
what the statistics are telling you, saying it's low triple
C or low wharf, which is the Moody's equivalent of
a numerical equivalent of rating. But I see what they're doing,
like this is not a low risk portfolio. So having
the insight on what the underlying collateral is and not
just the quantitative model about running what default rate and
(28:55):
recovery rate they'll be I think is really beneficial to
COLO investing.
Speaker 1 (29:00):
A lot of people at Bloomberg News ask the credit team,
which I'm part of, why spreads just keep going lower
even though risk seems to be getting worse. You know,
fundamentally we seem to be facing a bit of a
drag in the economy and potentially earnings will suffer and
you know, consumers getting hit. You know, I often just
talk about there just being not enough supply. One area
(29:22):
that you know, potentially we could see it is M
and A, but that hasn't really started very strongly this year.
What's your what's your view of M and A. Do
you think we'll get a lot of that this year?
Speaker 3 (29:30):
So you're right, there's a clearer technical imbalance between supply
and demand, and that is part of the reasons why
why spreads are so tight right now. There's more demand
for loans than there is true loan creation. It's sort
of an easy prediction that there should be more M
and A this year because it was so low last year,
it's not that hard to beat. When we talk internally
(29:54):
to to our capital markets team, they do believe they'll
they'll see more M and A this year, both from
the portfolio companies, meaning their portfolio companies may have thought
that it would be hard to acquire something or add on,
you know, another business line, and now with the new administration,
they think it could be easier. So just more portfolio
(30:16):
company M and A. But there also seems to be
more more processes in the background. So I don't know
what the full year looks like as far as what
the total amount of true new issue and will look
like in our market from LBOs and M and a's,
but I do think we're setting up for a busier
year than we were than we had last year.
Speaker 1 (30:38):
Are you in any way sort of surveying the landscape
for potential acquisition targets and trying to ride the change
of control elements of that as a as an investor, Yeah,
we have that from the bond side at the moment
that people are looking for targets and then you know,
you get this one oh one, and how does that
work in terms of what you're investing in?
Speaker 3 (30:56):
Yeah, So we have had what i'd say, you know,
some bonds that we own that announce that they're being acquired.
Those are very positive situations because you get that very
quick pulled apar from what was probably a low coupon
bond trading at a disc discount, not because of credit risk,
but because of duration risk. We have run some screens
(31:20):
there as well, but that's not our principal strategy.
Speaker 2 (31:24):
Okay.
Speaker 1 (31:25):
So, but you do expect more LBOs with debt, and
that maybe to boost the leverage loan supply, not on
the net basis, Okay, any particular sectors you think are
right for that right now?
Speaker 3 (31:38):
I think it's sectors that could support a higher base
rate and so good cash flow types of companies that
you could still put six times leverage on areas where
you see growth and could support a cap structure that
assumes that rates are not going back down to zero.
Speaker 1 (31:56):
And does that take us also to private credit funding
those deals?
Speaker 3 (32:00):
Absolutely?
Speaker 1 (32:01):
Okay, And it would for an issue. It just really
depends they have those options. It would just depend on
where the best cost of funds are right.
Speaker 3 (32:09):
And what is you know, what are they looking for?
Is it the cost of funds or is it more
delay drop capabilities because they're going to do more tucking acquisitions, right,
direct lending may be easier to do. They want a
unitrant solution in the direct lending market, where if they
came to the liquid loan market, they need a first
lean and a second lean component, where the blended rate
(32:30):
may actually not be that different than what the unitrant
rate is.
Speaker 1 (32:34):
Okay. Your titles also has the word global in it,
which I'm always very interested in, giving that everyone is
just so loaded up on the US at the moment,
but there seems to be, you know, lots of other
markets out there. Maybe geographical diversification is a good thing
over the long haul. What are you saying outside of
the US.
Speaker 3 (32:53):
Yeah, So we have a European business as well. It's
about nine billion dollars a UM invested in liquid loans,
mostly through colos. What I'd say is that we're actually
seeing pretty good performance there. It doesn't look that different
from what we're seeing in our US companies. So in
(33:14):
our US companies for the third quarter, we saw about
seventy percent of our companies grow sales and EBITDA it
was very high sixties in Europe, right, just a couple
percentage points different, which which I think surprises people when
they think about Europe. But when we look at the
performance of loans and companies in Europe, I think Germany
(33:38):
has very specific issues, but Germany is not all all
of Europe. So we're seeing pretty We're seeing pretty strong
performance in the portfolios on both sides, and they don't
look that different from the performance metrics right now.
Speaker 1 (33:53):
But the idea is that the US is going to
grow a lot more in the in the you know,
European countries are going to face you know, much more
challenging times ahead, and that will filter down to the
boroughs at the corporate level, although they seem to be
priced much cheaper, is there a relative value opportunity US
Europe and in favor of Europe at the moment.
Speaker 3 (34:12):
Yeah. And by the way, since Ukraine, everyone's been predicting
some of the downfall of the European economy and that
the credits were going to deteriorate very meaningfully, and that
hasn't really happened, right, And yes, you could pick up
meaningful spread by investing in European loans. We would see
average portfolio spreads in Europe in the high three seventies
(34:33):
versus the low three twenties in the USA. Now your
base rate is lower, so the yield in the US
is still higher, So you think about how you're hedging
and where your capital is coming from. But it also
note that Europe doesn't have this liability management distress exchange phenomenon.
There are some, but it's not as prevalent as what
(34:55):
you're seeing in the US.
Speaker 1 (34:57):
And you don't think it's going to spread in that direction.
I mean, these things tend to move, you know, around
the world.
Speaker 2 (35:03):
I do.
Speaker 3 (35:04):
I think I think that there will be more of
them in Europe over time, but I don't think we're
catching up to where we are in the US anytime soon.
Speaker 1 (35:12):
Okay, but so, but you're naturally presumably weighted towards the
US just because of the scale relative scale of the
two markets.
Speaker 3 (35:20):
Do you do you do?
Speaker 1 (35:21):
You do you spend much time in Asia?
Speaker 3 (35:23):
Yes, we we have a lot of investors in Asia,
so we we try to visit frequently.
Speaker 1 (35:29):
And when you're talking to investors that aren't from the US,
what are they what are they asking you right now?
I mean that from you know, the questions I get
from the UK, for example, along the lines of what
on earth is going on because of the politics more
than anything. But but what sort of questions do do
potential investors ask you about, you know, generally investing in
credit right now?
Speaker 3 (35:50):
Yes, I'd say when we uh talk to to investors
in Europe, I'd say there's a little there's more pessimism
there than there is in the US today. Certainly, questions
around policy tariffs, what the administration means, what the interconnectivity
of the supply chain looks like, and you know, where
(36:11):
where the US decides to partner going forward. So I
think it's just top of mind, both in Europe and
Asia and even in the US to ask questions like that, and.
Speaker 1 (36:21):
In terms of you know, the answers that we get
from investors at the moment is look through the noise,
focus on the pro growth, focus on the on the
business credentials of of the you know, the leaders, and
don't get don't get tied up in the you know,
the day to day noise. Is that is that a
fair assumption for for you know, a portfolio manager right now,
(36:41):
should should they just do that?
Speaker 3 (36:44):
I think it's hard to just do that, especially given
how tight risk premiums are. You know that said a
lot of times you have a clear picture on policy,
and then you could you could figure out what your
investment strategy is with that. And I don't think we
have a very clear view on policy right now, and
things are changing, and we could see headlines that say
(37:06):
one thing you know on Monday, and say a different
thing on Tuesday, so uh, you know, the antenna is up.
I think that's where it comes down to, trying to
find companies that can withstand volatility and withstand some policy changes,
even if that means that the ibadah will go down
and they still work and their capital structures still work,
(37:27):
and the cuspy companies that really have no margin for error,
I think we have to be careful with.
Speaker 1 (37:33):
And in simple terms and that supremely large capital structures
that are higher.
Speaker 3 (37:36):
Rated, higher rated or they could still be B three
companies that still produce a lot of cash flow even
if they have six times leveraged, or and they have
good business models that will eventually be able to recover.
Speaker 1 (37:53):
Because you know, as we've discussed, there isn't enough supply.
There is a lot of demand that there's none of
this not enough of this good stuff to go around.
So sourcing must become a challenge for you. I mean,
how do you deal with that?
Speaker 3 (38:05):
Well, what I'd say is that there has been there
is a technical in the market where about twenty five
percent of the COLO market is still post reinvestment period.
What does that mean. It means generally they can't buy loans,
and if there's a refinancing of the loan and the
(38:25):
maturity is being extended, oftentimes they can't participate. So for
large managers, you almost have that with all the refinancings
that have happened in twenty twenty four and we think
are going to happen in twenty twenty five, you almost
have this natural supply coming because the older funds can't
participate anymore, and you have a free option on those
(38:47):
loans since you own them to be as So that's
been a true source of loans for new deals or
reinvesting deals, I think for most large managers that have
a significant COLO COLO platforms. And then I think we'll
see we'll see some more some more new issue loan creation.
(39:09):
And lastly, we're starting to see a little bit a
little bit of pricing come down. So whereas more of
the market was trading over par a couple of weeks ago.
The secondary is easier to buy today, closer to.
Speaker 1 (39:22):
Par right, okay, And do you think that that downward
trend in pricing continues, you.
Speaker 3 (39:28):
Know, it's it's hard to tell. I'd say there's been.
If we continue to see retail inflows into floating rate assets,
which we probably will, then loan should move back up.
Speaker 1 (39:39):
Yeah, okay, And back to the issue as item just
just very briefly. The the issue was we we are
hearing have gotten used to hire for longer and they
settled in and even if ten year rate goes to
five percent, they'll still be okay, although there will be
this you know, default rate that continues, you know, historical
averages because there are companies that just can't can't do that.
(40:01):
But do you get the sense that you know that
it's going to be worse than that, You know that
a five percent rate could could push a lot more
borrowers over the edge and we suddenly get a much
much more distress in the marketplace.
Speaker 3 (40:12):
You know, we had the highest percentage of our companies
produce cash flow in the third quarter than we'd seen
in I think years. And that's not a counterintuitive, right,
because you would think that you'd have a very with
rates being so high, they should have produced a lot
(40:32):
more cashlow in twenty twenty one when rates were close
to zero. In fact, we had a very much lower
percent of our company producing cash flow then, even though
they were growing sales and EBITDA at a faster pace
and a higher percentage of our companies were growing sales
and EBITDAD. So why was it. It was because they
were investing. There were good times, there was more cap
beex they were more hiring, there was a talent war.
(40:53):
They were investing in their future. And I think that
with rates being up, and I think, like you said,
the market accepting that this is going to remain higher,
maybe not the highest, but higher for longer, there's much
more of a focus on cash flow and producing cash
and keeping cash. And so I think we've seen management
(41:14):
teams trained to think about that over the last year
or two, and especially coming back from COVID when everything's
fell apart for many companies, and I think there's a
true focus on how to operate in this higher rate
environment going forward.
Speaker 1 (41:30):
So when you look around everything, you get to see
which must be a lot globally and sort of thinking
about relative value for let's say the next twelve to
eighteen months, what jumps out as an opportunity for you?
Speaker 3 (41:43):
Yeah, so I like the middle market COLO equity. I
think the cash flow profiles really interesting. It is a
market that is not fully developed like the BSL COLO
market is. I think there's an opportunity there because it
is a newer market and not everyone's investing and chasing
that asset class. So I think you could get pretty
(42:05):
attractive IRRs and cash on cash returns in that if
you if you can source the paper again, because it's
it's a market that is much smaller.
Speaker 1 (42:16):
What would you say in terms of numbers? Is that
double digits? Is it fifty percent? What kind of numbers
do you think about as attractive returns?
Speaker 3 (42:23):
Yeah. When we model it, we were looking at deals
and modeling middle market co equity. Right now we're seeing
mid to high teens IRRs versus let's say twelve to
thirteen percent irs for BSL COLO equity.
Speaker 1 (42:38):
Okay, and that has has it gone up recently or
is it is it generally going up or is it
capped around that level?
Speaker 3 (42:44):
I'd say it's it's consistent around that level over the
last year or so, we've seen like we've seen the
assets spreads come down, but we've also seen the liabilities
spreads come down, which has really helped to stabilize the
arbitrage and cash on.
Speaker 1 (43:00):
Okay, I have to ask because middle market one guests
recently described a billion dollar loan as mid market. What
does it mean to you.
Speaker 3 (43:10):
That I would think of companies with EBITDA inside of
one hundred million or seventy five million as middle market
in today's in today's environment.
Speaker 1 (43:21):
And a middle market clo, how big could that be?
Speaker 3 (43:25):
The traditional size around four hundred million dollars, so you've
actually seen ones go up I think close to a
billion dollars. So you see a range, but I'd say
that the traditional size is around four hundred and As.
Speaker 1 (43:38):
We started by talking about risk and you mentioned, you know,
we're all worried because we're credit people. What keeps you
up at night worrying about? You know, in terms of
credit markets, there just seems to be a ton of
liquidity out there, not enough to buy. But what's wrong
with that picture? Anything concerning at the moment.
Speaker 3 (43:54):
Yeah, I'm really concerned about policy change that could hurt
our companies and how do we figure out which which
policies will actually be changed and who which companies are
not going to be able to handle that that risk?
And it's it's the uncertainty that I think it scares me,
(44:18):
or as a credit person, worries me because we don't
have a lot of insight into that. Right now, we
have this wonderful government Affairs group, given our DC heritage,
and they provide us a lot of color on what's
going on on the Hill and in Washington, so that
that's beneficial and I think is UH will hopefully help
us navigate this environment. But there's there's still a lot
(44:41):
that's changing every day.
Speaker 1 (44:43):
Is that the edge being rooted in DC? I was
going to ask you, what's your edge? We are the
credit edge?
Speaker 3 (44:47):
So is it?
Speaker 1 (44:48):
Is it the DC connection?
Speaker 3 (44:50):
I think our DC heritage is certainly helpful when we
have today's risks in the background.
Speaker 1 (44:56):
Great stuff, Lauren Bezmejian, Global head of Credit at Carlyle.
It's been a pleasure having you on the Credit Edge.
Many thanks, thank you, and of course we're very grateful
to Michael Campillone from Bloomberg Intelligence. Thanks for joining us. Ay, Mike,
thank you very much. For more credit analysis, read all
of Mike's great work on the Bloomberg Terminal. Bloomberg Intelligence
is part of our research department, with five hundred analysts
(45:18):
and strategists working across all markets. Coverage includes over two
thousand equities and credits and outlooks on more than ninety
industries and one hundred market indices, currencies and commodities. Please
do subscribe to the Credit Edge wherever you get your podcasts.
We're on all good podcast providers, including Apple, Spotify, and
the Bloomberg Terminal. Give us a review, tell your friends,
or email me directly at jcromby eight at Bloomberg dot net.
(45:42):
I'm James Crombie. It's been a pleasure having you join
us again next week on the Credit Edge.
Hello, and welcome to the Credit Edge, a weekly markets podcast.
My name is James Crumbie. I'm a senior editor at Bloomberg, and.
Speaker 2 (00:23):
I'm Mike Campbelone, a senior credit analyst covering high yield
and investment grade retailers at Bloomberg Intelligence. This week, we're
very pleased to welcome Lauren Bez Maijin, Global head of
Liquid Credit at Carlisle. How are you, Lauren, great?
Speaker 3 (00:36):
Thanks for having me.
Speaker 2 (00:38):
Lauren is a partner in Global head of Liquid Credit
within Carlile's Global Credit Platform and CEO of CCIF, Carlile's
closedn fun focused on investing in equity and junior debt
tranches of colos. She's based in New York and sits
on the firm's liquid and private Investment committees. Carlile's Global
credit platform with about one hundred and ninety two billion AVASA.
(01:00):
It's under management spans across liquid credit, private credit, real assets, credit,
and other platform initiatives. Their liquid credit business has almost
fifty billion of assets under management and is responsible for
Carlisles COLO Management, COLO Investment and senior secured revolving credit
facilities of non ig issuers. James why don't I hand
it over to you to get us started.
Speaker 1 (01:21):
Yeah, and I'd also note that Lauren's a bit of
a legend on the COLO scene of frequent speaker at
conferences who has been right about the proposition that collateralized
loan obligations are actually a pretty safe bet for credit investors.
So we'll get into that a bit later on in
the show, but before we do it, just a few
words on what we're seeing right now at Bloomberg News.
Markets are getting whipsored by trade wars that will probably
fuel inflation and fears about the sustainability of the US
(01:44):
economic growth. Both will be very bad for credit, and
prices have dropped a bit over the last week. Leverage
loans are at a three month low, but corporate debt spreads,
which we use as a proxy for risk, are still
pretty close to where they were in two thousand and seven,
just for the global financial crisis. If you only looked
at market pricing, think the world was quite a peaceful,
calm place, nothing much to worry about. But news headlines
(02:04):
show the opposite, from radical policy shifts in the US
to ongoing military conflict, stubborn inflation, and declining consumer confidence.
Plus a ton of uncertainty about what the Fed may
do next with rates. There's a wall of worry, but
also a ton of complacency in markets, and we continue
to see very robust investor demand for corporate bonds and loans,
especially in the US. Not a lot of net news
(02:24):
supply though, that more than anything else, may be keeping
valuations high. So, Lauren, what's your take. Should we focus
more on the apparent pro growth focus of the new
administration and all the businessmen in it, or do we
still need to worry about trade wars, policy overhauls, and
geopolitical headwinds, or you know, should that be more in
the price?
Speaker 3 (02:43):
Sure? Yes, so we should. We should worry. We're credit people.
We have downside because most of what we buy is
near par so we have to think about how do
we protect that? And there is more uncertainty in this
environment where we're unclear where policies shake out. There's probably
more stroke with a pen risk than what we normally
(03:03):
operate with, so I think, especially given the really tight
spread environments pretty much across all of fixed income, not
just leverage loans and colos, you're not really getting paid
to take the incremental risk. So finding good companies that
can withstand volatility and exiting the weakest of companies that
(03:24):
if there is a policy change that should affect them,
they could they could really have financial difficulties. I think
is the right play right now.
Speaker 2 (03:34):
And then Lauren, obviously there's been tremendous growth in private
credit markets in recent years. You know, do you see
that trend continuing and our public credit markets getting crowded
out by the availability of private credit.
Speaker 3 (03:47):
I do see the trend continuing because there's a lot
of demand for private credit, and there's a lot of
demand for below investment great credit to begin with right now,
especially floating rate. And why is that? Well, you know what,
the inflationary environment's not terrible for below investment grade corporate credit.
(04:07):
We haven't reached the two percent inflation target. We're in
the mid threes instead. But what does that mean. One,
it means that our companies are probably growing a little
more than they would be if the environment wasn't inflationary.
So maybe you're picking up another point or two in
epit dog growth or sales growth. But at the same time,
because you have the inflation worry in the background, it's
(04:32):
likely that rates remain higher for longer, so you're getting
paid more on a floating rate asset class. So I
actually think the environment for total return investing in credit
looks pretty pretty attractive versus other classes. So let let's
get to your actual question of what does that mean
for private versus public. I think there's going to be
(04:54):
demand for both. They're both floating rate asset classes lending
to below investment grade on a first lean basis, and
I really don't view it as competition. I thought it
was very complementary to have direct lending step in when
the banks were having trouble underwriting or just weren't underwriting.
Direct lending has raised so much money that they could
(05:17):
do really big deal sizes today versus five or ten
years ago where they couldn't write the same type of
check that a BSL investor can. So giving lenders options
and having more availability of credit is a good thing
for all of our markets. And I think you're starting
to see more and more convergence where loans or borrowers
(05:38):
are moving in and out of each market depending on
what their goal.
Speaker 1 (05:43):
Is, And as an investor, where's the relative value Right
now between the.
Speaker 3 (05:47):
Two, we're seeing significant spread compression in both right now,
So you could probably put together a performing portfolio of
bsls in the three two any spread context where you're
looking closer to five hundred for for direct lending, so
you're still getting a meaningful pickup, though that that pickup
(06:09):
has has certainly declined over the last couple of years.
One thing that I think is pretty interesting and is
a market that still has room to grow is middle
market COLO equity. Uh. There actually seems to be pretty
good relative value there because even those spreads have compressed
(06:29):
in both the BSL asset side and the direct lending
asset side. Still of the liabilities and the arbitrage that
a middle market COLO can create based on where those
liabilities have now compressed to, I think really offers a
meaningful pickup to most most other fixed income markets.
Speaker 1 (06:49):
I do want to get to clos and more detail,
but for you just sort of back up into the
private credit because that's what everyone wants to talk about
right now. And it's interesting. You're seeing this convergence and
this you know, reduction in spe of direct versus broadly
syndicated loans BSL. Does that compression continue?
Speaker 3 (07:06):
Do you think?
Speaker 1 (07:07):
And what's what's causing it.
Speaker 3 (07:09):
I think it's gonna be hard to compress much more
from here. We are seeing new issues new issue loans
come at post financial crisis tights. It doesn't mean that's
where the market is trading, because there's still some tail
in the market if you look at the index. But
based on performing credit in the BSL market, we are
seeing B three's price at three hundred some even at
(07:33):
two seventy five, B two's two fifty two seventy five,
and new issues, so I don't think there's going to
be a ton more room for spread compression. That said,
most of our market is an arbitrage market, so if
we see significant tightening and co los spreads, it would
make room to tighten more on the asset side.
Speaker 1 (07:55):
And also the compression between the broadly syndication and private
does that keep getting squeezed the gap between directs and syndication.
Speaker 3 (08:03):
I actually think there's a little more room to go there.
With how much dry powder there is in direct lending
today and how much demand there is, and just not
a lot of new loan formation in either market, you
probably have some more room on direct lending compression.
Speaker 1 (08:19):
It's interesting what you say about them being complementary. Does
that remain the case. I mean, it seems like private
credit came in when when public markets would kind of
shut down, and you know, there were four borrowers that
didn't really have great access and they had to pay
up to get that access and for faster execution in
certain situations. But is it just a market for the
bad times or is it Why do you think it's
(08:41):
here to stay?
Speaker 3 (08:42):
No, I think it's here to stay. I think it's
completely complimentary. For example, you would think that you're you
would be seeing one direction right now, meaning larger issuers
that had issued loans into the private credit market would
come and refinance into the BSL market and get a
nice so for plus three twenty five loan versus the
(09:05):
five point fifty or so they were paying. And sure,
we are seeing some of that, some of these companies
that have grown through acquisitions and their ebatahs bigger and
they could get a much cheaper rate in the BSL market.
They're doing that. But we're also seeing performing loans that
trade it par with tight spreads move into direct lending
(09:26):
out of BSL. And why is that? It's because the
BSL market's a rating constrained market. We go back to
the COLO thing. You get clos or the main buyers.
They have a lot of ratings constraints, but you could
probably take a bigger dividend that may have been rated
triple C if you did it in the BSL market,
(09:47):
and take it to an unrated market for a really
strong company that may be still producing cash flow, and
you put on extra a couple turns of leverage that
they could support but not get a triple C rating,
or the buyer is not asking for rating. And we've
seen a couple of multi billion dollar deals come out
of the BSL market year date, performing credit pay a
higher interest rate, but decide to go to direct lending
(10:10):
because they could issue more attractive terms for what they're
looking for.
Speaker 1 (10:14):
And that doesn't worry you in terms of you know,
all this risk building up in the shadows. You know
that's potentially unregulated, and you know, we can't really see
how it's actually marketing to market if even is. I mean,
do you worry about the growth there?
Speaker 3 (10:28):
I think that for a while, we would hear people
say that direct lending has zero defaults, and that just
can't be true. It's a lower rated asset class than BSL.
Of course, they have more partnerships with the sponsors than
you see in BSL, so there's more room to negotiate
(10:49):
and keep companies liquid and out of bankruptcy. But over
time it's a below investment great asset class, there will
be defaults and we're seeing that right. We didn't see
a ton during COVID, but you are seeing with higher
interest rates for multiple years now that depending on what
data you're looking at. You could look at a Lincoln index,
(11:11):
or you could look at you through your own portfolios,
you're starting to see some defaults. I think it looks
more like the BSL market, even though it's a lower
rated market. So maybe we average somewhere around two percent
constant default rates going forward. Of course peaks and troughs
within that. Why would a lower rated market or lower
(11:33):
quality market have a similar default experience as as a
higher rted market. And I think that really does go
to the partnership with sponsors and direct lending and the
ability for a small group of lenders to negotiate terms
and offer pick interest for example for a period of time,
or sponsors actually putting in equity capital, which you've seen
(11:53):
in direct lending much more than BSL and tighter documentation.
So I think some of the market technicals they compensate
for the lower quality. And my prediction at least is
that we'll see pretty similar default rates in both markets,
though not zero anymore for direct lending.
Speaker 2 (12:12):
Yeah. And on a similar note, Lauren, you know liability
management exercises have been on the rise amongst stress creditors.
Is this activity a healthy thing for investors or a negative?
Given that that outcomes can vary amongst investors of the
same creditor.
Speaker 3 (12:28):
Class, well, as a loan peerist, you have to think
that it's not a good thing. I think a lot
of us have trouble thinking about how debt could be
taking a haircut before equity. Equity is supposed to be
the first loss, and oftentimes you see sponsors or companies
come back to lenders and say, well, I'm not taking
(12:49):
a loss, but because your credit agreement is so loose,
I'm going to strip assets or drop down assets unless
you take a haircut or you extend me more money.
That's not the way our market has historically operated. And
it feels like a sea change. It's a sea change,
really that that's there were some of these that had
(13:10):
famous names, and there's a ton of press about you know,
five years ago or ten years ago, and now they're
commonplace over the last year and a half or two years.
So overall, it really does dilute the quality of the
BSL market. There's a higher likelihood that you will be
(13:30):
asked to take a discount on something, even if that
company doesn't really have to file for bankruptcy, right they
could take advantage of the documentation. The companies and sponsors
are not being punished for this behavior. So that makes
me believe we continue to see it. When loans trade
at eighty or eighty five cents in the dollar, advisors
are being really aggressive and reversing these ideas in so
(13:51):
even if it's not the company's idea, it's being put
in front of them as an option. So I think
it's here to stay. So the next question is what
do you do if you believe that this is the
new normal for the leverage loan market, And then I
think you have to invest behind it. Right, you need
the capabilities to make sure that your size matter, your
(14:13):
voice matters. You have the right people on your team
that have the capabilities to negotiate these these transactions, because
more so than ever, you will see the same exact
loan owned by let's say two different managers recover something
totally different, and I think that's going to be a
(14:33):
differentiation in performance for loan managers going forward.
Speaker 2 (14:37):
Absolutely fair point. And then you know, how does Carlisle's
platform differentiate itself in that regard, you know, especially as
we move out of a cycle of the court bankruptcies
and into Lem's.
Speaker 3 (14:47):
Yeah, so soze size matters and size helps, and we
are the largest BSL manager there so even if we
don't have a big position in one fund, the fact
that we manage close to one hundred clos adds up
to a large position in most things. So our voice matters,
and we've really invested behind this theme. We've now built
(15:08):
out a six person team that is solely dedicated to
working on transactions where we're looking at or restructuring or
LM in and out of court.
Speaker 1 (15:19):
But how do CLOS participate, I mean, are they adding
new language to the documentation?
Speaker 3 (15:25):
Yeah, I'd say we've seen a lot more flexibility in
language over the last five plus years in CLOS. Really,
as even debtholders are acknowledging that this is an important
capability to protect value within the CLO. I think there
was a there was a perception that clos are being
taken advantage of for a lot of their history. That
(15:47):
was more from the hedge fund community that would learn
what the documents would look at and how to structure
something around them. That also feels like a bit of
a change now as a lot of the map who
are leading these strange actions though not always but but
commonplace now is for par colo buyers or just par
(16:08):
loan buyers to be very active in these processes and
figuring out how they want them structured.
Speaker 1 (16:16):
And to Mike's point, I mean you, as Carlile, how
do you make sure you get the better recovery if
you know there are two outcomes on the table.
Speaker 3 (16:23):
Yeah, you have to make sure you have the right
expertise and you're forcing your way into the right group
if it's a non proredd of transaction. That's my thesis
that that's what I believe is happening. We're seeing just
more and more of these as soon as the loan
price is trading again eighty five eighty. They're rumblings, and
(16:48):
what happens is you see more volatility in the in
the loan prices. And why is that It's there's now
this uncertainty premium that you need because before you would
be able to have a really good call on an
asset and say, well, it's trading at seventy five, but
I believe in the management team they're going to turn
the company around. It's power paper and you may be
(17:09):
right on that, but that doesn't mean that you don't
have process risk in between the two. And so that
process risk deserves a premium or a risk premium in
our market. You don't adjust it with the spread. There
is a spread is the spread, so that means there's
more volatility in the price.
Speaker 1 (17:25):
Right. Yeah, Our last guests actually from PIMCOD described this
whole situation as a knife fight between creditors. Hopefully it
doesn't get worse, but there seems to be no punishment
for engaging in it, either on the borrow or the
advisor side, so it seems that it probably will get worse. Right,
But turning to clos which you know we talked a
(17:46):
bit about the beginning. There has been a record year
you know behind us for issuance and resets. A lot
of people expect another record year for primary volume this year,
do you share that view? What's your forecast?
Speaker 3 (17:59):
Well, we are starting twenty twenty five pretty much where
we left off in twenty twenty four, with pretty significant
co low volume. New issue volume is down year over year.
I think that's because asset prices have been so high,
so it takes longer to create new issue by sourcing
primary loans versus more in the secondary. But resets have
(18:21):
really stepped in because you don't need a lot of
new assets for resets, so you've seen significant reset volume,
and I think I think new issue volume is going
to pick up as a lot of these warehouses get
to let's say, fifty percent of the target value in
primary loans. There are a lot of estimates out there
that suggest that we'll have another record year or record
(18:43):
breaking year. It feels like that right now, But I'll
be a little contrarian in that there's probably going to
be more volatility this year than there was last year.
The markets, the fixed income markets just feel very much
priced for perfection, and we're seeing there's just more risk.
And you opened with a number of those risks when
(19:04):
we started this conversation. So last year we had almost
no volatility. I would expect pockets this year. And what
do pockets of volatility do. It slows down issuance.
Speaker 1 (19:15):
And that just means tight to spreads, right, tighter spreads
on the clos.
Speaker 3 (19:20):
Well, we're tight. We're tight right now. Really, if you
look at where we are since the financial crisis on
a weighted average cost of debt basis, we're near all
time tights. So triple as are not at tights yet.
That said, I don't know that we close much tighter
than where we are today depending on volatility. We have
(19:42):
seen over the last let's say a week or so,
a little bit of widening in the way to average
cross the debt. I think that just comes with the
macro volatility. Seeing the stock market have some down days,
some of these headline risks, and people taking a little
bit of a step back, and that's just a microcosm
(20:02):
of what could happen throughout the year. So maybe we
end up close to where we are right now by
year end on spreads, maybe we're a little bit tighter
or wider, But I think there's just going to be more.
There will be times where we'll see more about volatility.
Speaker 1 (20:20):
My colleague Charlie Williams over and bloommig News. He says
for a standard five year reinvestment and two year non call,
it's around one fifteen one twenty now over sofa And
when we had three month libel, a few deals got
under one hundred. Maybe that was you know, five years
ago or so. Do you think we'll end the year
then around one fifteen? Still?
Speaker 3 (20:41):
Oh, my crystal ball is not is not that clear?
But yes, I think we probably end the year inside
of the one fifteen where we are now.
Speaker 2 (20:51):
And then Lauren, you know, middle market COLO involvement has
been an area of significant growth. Is that something you
know your business of Carlisle is involved in and what
do you what do you seeing there?
Speaker 3 (21:01):
Yeah, so Carlisle has a meaningful direct lending business. We
have issued middle market clos in the past. We did
a new issue middle market COLO last year in a
reset of an older one as well. So it's an
area that we're spending significant time on as I think
there's going to be more traditional COLO buyer interest in
(21:22):
having a pocket for some exposure to middle market clos
going forward.
Speaker 2 (21:28):
Fair enough for then you know, kind of switching gears.
You know, COLO ETFs have grown considerably over the past
two years. You know, what do you attribute this growth
to and is it a net positive for financial markets?
Speaker 3 (21:42):
Yeah, really significant growth. I think that part of it
is just demand for floating rate asset class, and so
you can invest in in the COLO Triple A fund
and get a spread over a nice floating rate base rate.
And when retail investors are looking for products that don't
(22:05):
have a lot of volatility that have performed, I think
there's and have a decent current yield. I think that's
created a lot of flows into the triple A product.
There will be more volatility on the MEZ products, the
ones that buy double b's and triple b's, But I
do think it's a positive for the retail investor to
(22:25):
have access to what had traditionally been institutional products. And
when you look at the COLO debt tranches, it could
be anywhere from triple as down to double b's. And
then you look at similarly rated asset classes, you see
better default histories, better sharp ratios, better current yield, better spread,
(22:51):
better total return. The most other comparable asset classes are
similarly rated asset classes, and yet the retail investor just
never had access. So I think I think it's a
really good I think it's a really good development for
the market. Clearly, that creates more demand and leads to
spread tightening, which is nice for CLO equity. At some
point there will be outflows though, and and I think
(23:15):
I think that will be an interesting thing for the market.
We haven't seen seen that happen yet, but that probably
also creates opportunity.
Speaker 1 (23:22):
I remember when the first ETF for CLOS was discussed
years ago and I mentioned it to someone. They said,
You're You're crazy. There's no liquidity there. What are you
talking about? So why why does this work?
Speaker 3 (23:34):
Now?
Speaker 1 (23:34):
I mean you your your title liquid credit clos. How
does that fit in? Why is it liquid? And how
liquid is it?
Speaker 3 (23:41):
Yeah? So the SALO markets are trillion dollars and you
have about sixty percent of that in triple A. Is
that's a pretty big asset class and a pretty liquid
asset class. Liquid, or at least the way we think
about it, Carlisle is tradable, something that you could buy
or sell any day that you walk into the office,
and COLO triple as certainly fit that bill.
Speaker 1 (24:00):
So if I'm a you know, I don't know how
much money I have to put in as a retail investor.
I'm for disclosure, I'm not invested in the COLO market.
But if I put a thousand dollars in, can I
get it back out tomorrow if I want?
Speaker 3 (24:12):
It? Settles T plus one?
Speaker 1 (24:14):
Okay, amazing. The other thing you talked about was equity.
You know, not all of our listeners will be familiar
with CLO equity and how it works. You know, we
mostly have debt investors and listeners here. But how does
that work and why does it still work in this environment?
Speaker 2 (24:32):
Sure so?
Speaker 3 (24:33):
So COLO equity is basically an arbitrage product. What a
COLO does is it lends to a bunch of below
enverestment great corporate credits. They are highly diverse collateral pools
by issuer and by industry. So for example, you can't have,
depending on the COLO document, more than between twelve and
(24:54):
fifteen percent in any one industry. So even if you
love oil and gas and we went through another oil
and gas cycle, eighty five percent of your portfolio will
not be tied to that negative industry trend at that time.
And that's why colos have worked so well over twenty
five years. Is unlike CDOs or mortgage securitizations. They're not
(25:17):
tied to just one industry or real estate. They're tied
to the US economy as a whole, with lots of
different lots of different industries and borrowers inside. So the
typical COLO will have two hundred and fifty three hundred
different below investment grade corporate names in it, and we're
talking about average, but DI have like seven hundred million
dollars or something along those lines. So these are really large,
(25:41):
large companies that colos are lending to. So they lend
to the companies, they get an average spread from lending,
and then they issue liabilities at tighter spreads, so you're
borrowing money at a cheaper rate to lend it at
a more expensive rate. You're levering that structure, and all
of the resis visual cash flows from the difference between
(26:02):
what you're borrowing at and what you're lending at go
to the benefit of the equity investor, and that creates
really high cash on cash profiles compared to other compared
to other products. But the equity is also the first loss.
So any default you take, any trading loss you take,
will hit will hit the equity return. So oftentimes you'll
(26:25):
receive higher cash on cash, but you have to think
about what loss you will take at the end because
there will be defaults or losses over a period of time.
Speaker 1 (26:36):
How much have they lost if they've been terrible victims
of various cycles, or have they came up Have they
come up pretty pretty strongly?
Speaker 3 (26:45):
Yeah, So it depends. That depends on the vintage. I
think there's there are stronger vintages and weaker vintages. The
rule of thumb is you're supposed to assume that there's
a two percent constant default rate in a CLO and
you recover sixty cents on that. Realistically, you don't really
have a constant default rate. You have times when they're
high default rates and times when there's close to zero
(27:07):
default rates. What I think surprises a lot of people
when we talk about colos is some of the strongest vintages,
for example, was right before the financial crisis. How is
your strongest vantage of col IRRs the ones that are
issued in two thousand and seven, and then you went
to nine percent defaults the next year, But it was
because that locked in capital cheap cost to capital that's
(27:31):
non marked to market, so there's no foreselling and then
you have a reinvestment period. So even at times when
there's high defaults, when you get pre payments, then you're
reinvesting those prepayments at cheaper dollar prices, higher spreads, and
it starts to build back what you may have lost
from the defaults. So you actually will see pretty good
(27:52):
returns from colos when they're issued right around a time
of volatility.
Speaker 2 (27:58):
And Lord buying non Carlisle managed colos is a part
of your business. You know, what's your involvement in that
aspect of the business and what is the process like
for you when you're deciding what looks interesting and what
you may pass on.
Speaker 3 (28:11):
Yeah, so we all sit as one team, between the
COLO tranch investing team and our analyst team, and I
think it's really valuable because we actually can understand the
risk inside those portfolios. So I will sit on the
investment committee for the tranch investing teams, and at times
I could look at a portfolio and say, I know
(28:32):
what the statistics are telling you, saying it's low triple
C or low wharf, which is the Moody's equivalent of
a numerical equivalent of rating. But I see what they're doing,
like this is not a low risk portfolio. So having
the insight on what the underlying collateral is and not
just the quantitative model about running what default rate and
(28:55):
recovery rate they'll be I think is really beneficial to
COLO investing.
Speaker 1 (29:00):
A lot of people at Bloomberg News ask the credit team,
which I'm part of, why spreads just keep going lower
even though risk seems to be getting worse. You know,
fundamentally we seem to be facing a bit of a
drag in the economy and potentially earnings will suffer and
you know, consumers getting hit. You know, I often just
talk about there just being not enough supply. One area
(29:22):
that you know, potentially we could see it is M
and A, but that hasn't really started very strongly this year.
What's your what's your view of M and A. Do
you think we'll get a lot of that this year?
Speaker 3 (29:30):
So you're right, there's a clearer technical imbalance between supply
and demand, and that is part of the reasons why
why spreads are so tight right now. There's more demand
for loans than there is true loan creation. It's sort
of an easy prediction that there should be more M
and A this year because it was so low last year,
it's not that hard to beat. When we talk internally
(29:54):
to to our capital markets team, they do believe they'll
they'll see more M and A this year, both from
the portfolio companies, meaning their portfolio companies may have thought
that it would be hard to acquire something or add on,
you know, another business line, and now with the new administration,
they think it could be easier. So just more portfolio
(30:16):
company M and A. But there also seems to be
more more processes in the background. So I don't know
what the full year looks like as far as what
the total amount of true new issue and will look
like in our market from LBOs and M and a's,
but I do think we're setting up for a busier
year than we were than we had last year.
Speaker 1 (30:38):
Are you in any way sort of surveying the landscape
for potential acquisition targets and trying to ride the change
of control elements of that as a as an investor, Yeah,
we have that from the bond side at the moment
that people are looking for targets and then you know,
you get this one oh one, and how does that
work in terms of what you're investing in?
Speaker 3 (30:56):
Yeah, So we have had what i'd say, you know,
some bonds that we own that announce that they're being acquired.
Those are very positive situations because you get that very
quick pulled apar from what was probably a low coupon
bond trading at a disc discount, not because of credit risk,
but because of duration risk. We have run some screens
(31:20):
there as well, but that's not our principal strategy.
Speaker 2 (31:24):
Okay.
Speaker 1 (31:25):
So, but you do expect more LBOs with debt, and
that maybe to boost the leverage loan supply, not on
the net basis, Okay, any particular sectors you think are
right for that right now?
Speaker 3 (31:38):
I think it's sectors that could support a higher base
rate and so good cash flow types of companies that
you could still put six times leverage on areas where
you see growth and could support a cap structure that
assumes that rates are not going back down to zero.
Speaker 1 (31:56):
And does that take us also to private credit funding
those deals?
Speaker 3 (32:00):
Absolutely?
Speaker 1 (32:01):
Okay, And it would for an issue. It just really
depends they have those options. It would just depend on
where the best cost of funds are right.
Speaker 3 (32:09):
And what is you know, what are they looking for?
Is it the cost of funds or is it more
delay drop capabilities because they're going to do more tucking acquisitions, right,
direct lending may be easier to do. They want a
unitrant solution in the direct lending market, where if they
came to the liquid loan market, they need a first
lean and a second lean component, where the blended rate
(32:30):
may actually not be that different than what the unitrant
rate is.
Speaker 1 (32:34):
Okay. Your titles also has the word global in it,
which I'm always very interested in, giving that everyone is
just so loaded up on the US at the moment,
but there seems to be, you know, lots of other
markets out there. Maybe geographical diversification is a good thing
over the long haul. What are you saying outside of
the US.
Speaker 3 (32:53):
Yeah, So we have a European business as well. It's
about nine billion dollars a UM invested in liquid loans,
mostly through colos. What I'd say is that we're actually
seeing pretty good performance there. It doesn't look that different
from what we're seeing in our US companies. So in
(33:14):
our US companies for the third quarter, we saw about
seventy percent of our companies grow sales and EBITDA it
was very high sixties in Europe, right, just a couple
percentage points different, which which I think surprises people when
they think about Europe. But when we look at the
performance of loans and companies in Europe, I think Germany
(33:38):
has very specific issues, but Germany is not all all
of Europe. So we're seeing pretty We're seeing pretty strong
performance in the portfolios on both sides, and they don't
look that different from the performance metrics right now.
Speaker 1 (33:53):
But the idea is that the US is going to
grow a lot more in the in the you know,
European countries are going to face you know, much more
challenging times ahead, and that will filter down to the
boroughs at the corporate level, although they seem to be
priced much cheaper, is there a relative value opportunity US
Europe and in favor of Europe at the moment.
Speaker 3 (34:12):
Yeah. And by the way, since Ukraine, everyone's been predicting
some of the downfall of the European economy and that
the credits were going to deteriorate very meaningfully, and that
hasn't really happened, right, And yes, you could pick up
meaningful spread by investing in European loans. We would see
average portfolio spreads in Europe in the high three seventies
(34:33):
versus the low three twenties in the USA. Now your
base rate is lower, so the yield in the US
is still higher, So you think about how you're hedging
and where your capital is coming from. But it also
note that Europe doesn't have this liability management distress exchange phenomenon.
There are some, but it's not as prevalent as what
(34:55):
you're seeing in the US.
Speaker 1 (34:57):
And you don't think it's going to spread in that direction.
I mean, these things tend to move, you know, around
the world.
Speaker 2 (35:03):
I do.
Speaker 3 (35:04):
I think I think that there will be more of
them in Europe over time, but I don't think we're
catching up to where we are in the US anytime soon.
Speaker 1 (35:12):
Okay, but so, but you're naturally presumably weighted towards the
US just because of the scale relative scale of the
two markets.
Speaker 3 (35:20):
Do you do you do?
Speaker 1 (35:21):
You do you spend much time in Asia?
Speaker 3 (35:23):
Yes, we we have a lot of investors in Asia,
so we we try to visit frequently.
Speaker 1 (35:29):
And when you're talking to investors that aren't from the US,
what are they what are they asking you right now?
I mean that from you know, the questions I get
from the UK, for example, along the lines of what
on earth is going on because of the politics more
than anything. But but what sort of questions do do
potential investors ask you about, you know, generally investing in
credit right now?
Speaker 3 (35:50):
Yes, I'd say when we uh talk to to investors
in Europe, I'd say there's a little there's more pessimism
there than there is in the US today. Certainly, questions
around policy tariffs, what the administration means, what the interconnectivity
of the supply chain looks like, and you know, where
(36:11):
where the US decides to partner going forward. So I
think it's just top of mind, both in Europe and
Asia and even in the US to ask questions like that, and.
Speaker 1 (36:21):
In terms of you know, the answers that we get
from investors at the moment is look through the noise,
focus on the pro growth, focus on the on the
business credentials of of the you know, the leaders, and
don't get don't get tied up in the you know,
the day to day noise. Is that is that a
fair assumption for for you know, a portfolio manager right now,
(36:41):
should should they just do that?
Speaker 3 (36:44):
I think it's hard to just do that, especially given
how tight risk premiums are. You know that said a
lot of times you have a clear picture on policy,
and then you could you could figure out what your
investment strategy is with that. And I don't think we
have a very clear view on policy right now, and
things are changing, and we could see headlines that say
(37:06):
one thing you know on Monday, and say a different
thing on Tuesday, so uh, you know, the antenna is up.
I think that's where it comes down to, trying to
find companies that can withstand volatility and withstand some policy changes,
even if that means that the ibadah will go down
and they still work and their capital structures still work,
(37:27):
and the cuspy companies that really have no margin for error,
I think we have to be careful with.
Speaker 1 (37:33):
And in simple terms and that supremely large capital structures
that are higher.
Speaker 3 (37:36):
Rated, higher rated or they could still be B three
companies that still produce a lot of cash flow even
if they have six times leveraged, or and they have
good business models that will eventually be able to recover.
Speaker 1 (37:53):
Because you know, as we've discussed, there isn't enough supply.
There is a lot of demand that there's none of
this not enough of this good stuff to go around.
So sourcing must become a challenge for you. I mean,
how do you deal with that?
Speaker 3 (38:05):
Well, what I'd say is that there has been there
is a technical in the market where about twenty five
percent of the COLO market is still post reinvestment period.
What does that mean. It means generally they can't buy loans,
and if there's a refinancing of the loan and the
(38:25):
maturity is being extended, oftentimes they can't participate. So for
large managers, you almost have that with all the refinancings
that have happened in twenty twenty four and we think
are going to happen in twenty twenty five, you almost
have this natural supply coming because the older funds can't
participate anymore, and you have a free option on those
(38:47):
loans since you own them to be as So that's
been a true source of loans for new deals or
reinvesting deals, I think for most large managers that have
a significant COLO COLO platforms. And then I think we'll
see we'll see some more some more new issue loan creation.
(39:09):
And lastly, we're starting to see a little bit a
little bit of pricing come down. So whereas more of
the market was trading over par a couple of weeks ago.
The secondary is easier to buy today, closer to.
Speaker 1 (39:22):
Par right, okay, And do you think that that downward
trend in pricing continues, you.
Speaker 3 (39:28):
Know, it's it's hard to tell. I'd say there's been.
If we continue to see retail inflows into floating rate assets,
which we probably will, then loan should move back up.
Speaker 1 (39:39):
Yeah, okay, And back to the issue as item just
just very briefly. The the issue was we we are
hearing have gotten used to hire for longer and they
settled in and even if ten year rate goes to
five percent, they'll still be okay, although there will be
this you know, default rate that continues, you know, historical
averages because there are companies that just can't can't do that.
(40:01):
But do you get the sense that you know that
it's going to be worse than that, You know that
a five percent rate could could push a lot more
borrowers over the edge and we suddenly get a much
much more distress in the marketplace.
Speaker 3 (40:12):
You know, we had the highest percentage of our companies
produce cash flow in the third quarter than we'd seen
in I think years. And that's not a counterintuitive, right,
because you would think that you'd have a very with
rates being so high, they should have produced a lot
(40:32):
more cashlow in twenty twenty one when rates were close
to zero. In fact, we had a very much lower
percent of our company producing cash flow then, even though
they were growing sales and EBITDA at a faster pace
and a higher percentage of our companies were growing sales
and EBITDAD. So why was it. It was because they
were investing. There were good times, there was more cap
beex they were more hiring, there was a talent war.
(40:53):
They were investing in their future. And I think that
with rates being up, and I think, like you said,
the market accepting that this is going to remain higher,
maybe not the highest, but higher for longer, there's much
more of a focus on cash flow and producing cash
and keeping cash. And so I think we've seen management
(41:14):
teams trained to think about that over the last year
or two, and especially coming back from COVID when everything's
fell apart for many companies, and I think there's a
true focus on how to operate in this higher rate
environment going forward.
Speaker 1 (41:30):
So when you look around everything, you get to see
which must be a lot globally and sort of thinking
about relative value for let's say the next twelve to
eighteen months, what jumps out as an opportunity for you?
Speaker 3 (41:43):
Yeah, so I like the middle market COLO equity. I
think the cash flow profiles really interesting. It is a
market that is not fully developed like the BSL COLO
market is. I think there's an opportunity there because it
is a newer market and not everyone's investing and chasing
that asset class. So I think you could get pretty
(42:05):
attractive IRRs and cash on cash returns in that if
you if you can source the paper again, because it's
it's a market that is much smaller.
Speaker 1 (42:16):
What would you say in terms of numbers? Is that
double digits? Is it fifty percent? What kind of numbers
do you think about as attractive returns?
Speaker 3 (42:23):
Yeah. When we model it, we were looking at deals
and modeling middle market co equity. Right now we're seeing
mid to high teens IRRs versus let's say twelve to
thirteen percent irs for BSL COLO equity.
Speaker 1 (42:38):
Okay, and that has has it gone up recently or
is it is it generally going up or is it
capped around that level?
Speaker 3 (42:44):
I'd say it's it's consistent around that level over the
last year or so, we've seen like we've seen the
assets spreads come down, but we've also seen the liabilities
spreads come down, which has really helped to stabilize the
arbitrage and cash on.
Speaker 1 (43:00):
Okay, I have to ask because middle market one guests
recently described a billion dollar loan as mid market. What
does it mean to you.
Speaker 3 (43:10):
That I would think of companies with EBITDA inside of
one hundred million or seventy five million as middle market
in today's in today's environment.
Speaker 1 (43:21):
And a middle market clo, how big could that be?
Speaker 3 (43:25):
The traditional size around four hundred million dollars, so you've
actually seen ones go up I think close to a
billion dollars. So you see a range, but I'd say
that the traditional size is around four hundred and As.
Speaker 1 (43:38):
We started by talking about risk and you mentioned, you know,
we're all worried because we're credit people. What keeps you
up at night worrying about? You know, in terms of
credit markets, there just seems to be a ton of
liquidity out there, not enough to buy. But what's wrong
with that picture? Anything concerning at the moment.
Speaker 3 (43:54):
Yeah, I'm really concerned about policy change that could hurt
our companies and how do we figure out which which
policies will actually be changed and who which companies are
not going to be able to handle that that risk?
And it's it's the uncertainty that I think it scares me,
(44:18):
or as a credit person, worries me because we don't
have a lot of insight into that. Right now, we
have this wonderful government Affairs group, given our DC heritage,
and they provide us a lot of color on what's
going on on the Hill and in Washington, so that
that's beneficial and I think is UH will hopefully help
us navigate this environment. But there's there's still a lot
(44:41):
that's changing every day.
Speaker 1 (44:43):
Is that the edge being rooted in DC? I was
going to ask you, what's your edge? We are the
credit edge?
Speaker 3 (44:47):
So is it?
Speaker 1 (44:48):
Is it the DC connection?
Speaker 3 (44:50):
I think our DC heritage is certainly helpful when we
have today's risks in the background.
Speaker 1 (44:56):
Great stuff, Lauren Bezmejian, Global head of Credit at Carlyle.
It's been a pleasure having you on the Credit Edge.
Many thanks, thank you, and of course we're very grateful
to Michael Campillone from Bloomberg Intelligence. Thanks for joining us. Ay, Mike,
thank you very much. For more credit analysis, read all
of Mike's great work on the Bloomberg Terminal. Bloomberg Intelligence
is part of our research department, with five hundred analysts
(45:18):
and strategists working across all markets. Coverage includes over two
thousand equities and credits and outlooks on more than ninety
industries and one hundred market indices, currencies and commodities. Please
do subscribe to the Credit Edge wherever you get your podcasts.
We're on all good podcast providers, including Apple, Spotify, and
the Bloomberg Terminal. Give us a review, tell your friends,
or email me directly at jcromby eight at Bloomberg dot net.
(45:42):
I'm James Crombie. It's been a pleasure having you join
us again next week on the Credit Edge.
Host
James Crombie
Popular Podcasts
40s and Free Agents: NFL Draft Season
Daniel Jeremiah of Move the Sticks and Gregg Rosenthal of NFL Daily join forces to break down every team's needs this offseason.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
The Bobby Bones Show
Listen to 'The Bobby Bones Show' by downloading the daily full replay.