The Credit Edge by Bloomberg Intelligence

Jackson Craig, co-head of H.I.G. Bayside, a distressed-debt specialist. He discusses rising loan distress from low-rate vintages. Topics include private-credit defaults, sector pain in chemicals, forced CLO selling and liability-management pressures. He also covers how H.I.G. sources, structures and prices private-market turnarounds.

Investors underestimate the hazards in private debt, according to Pacific Investment Management Co. “There’s a lot of additional credit risk that people are often taking in some of these private situations that you kind of turn a blind eye to,” Christian Stracke, the $2.3 trillion asset manager’s president, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Noel Hebert in this episode of the Credit Edge podcast. “There is a fairly large overhang of problem loans that were made in years earlier this decade that will take years to burn through,” he adds. They also discuss deteriorating debt underwriting standards in the technology sector, Europe’s big defense investment opportunity and the “sell America” trade.See omnystudio.com/listener for privacy information.

George Goudelias, Chief Investment Officer at Seix Investment Advisors, delves into the rising crisis of 'zombie borrowers' as interest rates soar. He warns these highly-indebted companies, with weak cash flow, face growing pressure in the current market. They also explore the impact of private credit on traditional leveraged finance and identify risky sectors like tech and healthcare amidst poor covenants. Goudelias shares insights on attractive investment buckets and cautions about the consequences of loose underwriting in the private credit space.

Susan Kasser, Head of Private Debt at Neuberger Berman and seasoned veteran from firms like Carlyle and Goldman Sachs, shares her insights on the private debt market. Despite negative media coverage, she reveals that direct loans offer a significant premium over traded debt, with Neuberger's impressive one-basis-point annualized loss rate. Kasser discusses how AI enhances deal sourcing and stresses the importance of selectivity. She analyzes the robust pipeline in U.S. direct lending and addresses sector focuses, while cautioning about persistent negative headlines.

Spencer Cutter, a Bloomberg Intelligence analyst specializing in US energy, joins Damian Sassauer, an emerging-markets credit strategist, to discuss the complexities of investing in Venezuela post-regime change. They explore the enormous challenges for debt recovery and the massive capital needed to revitalize the oil sector. The duo highlights the potential for American and Canadian refineries, particularly Chevron, to benefit from Venezuela's heavy crude, while also examining how Chinese interests could shift amidst U.S. influence.

Mike Contopoulos, Deputy Chief Investment Officer at Richard Bernstein Advisors, dives into the current 'everything bubble' in markets. He shares concerns about tech overvaluation and how rising interest rates may impact credit returns. Contopoulos suggests that AI's hype could distract from underlying financial fundamentals, while he points out opportunities in agency mortgages and European equities. He emphasizes the importance of staying cautious in today’s market, highlighting risks tied to complacency and investor expectations.

Dave Albrecht, President and CIO of Newfleet Asset Management, dives into the risks of the AI debt frenzy. He warns that heavy borrowing by investment-grade firms for AI projects could lead to significant fallout. Albrecht highlights the precarious position of Oracle's debt while advocating for asset-backed securities as a hedge. The discussion covers tactical moves across fixed income, the implications of private credit's growth, and the importance of direct company evaluations. He stresses the need for diversification amid evolving market dynamics.

Tal Reback, a global investment strategist at KKR, discusses the firm's pursuit of yield in the European and Japanese credit markets. With US debt spreads tightening, she emphasizes the importance of geographic diversification and highlights a potential $1 trillion opportunity in European asset-backed securities. Reback details the allure of private credit, risk management strategies, and market complexities. She also shares insights on AI's impact on credit underwriting and the need for selective, quality positioning in today’s exuberant market.

Brad Rogoff, Global Head of Research at Barclays, shares insights on the potential risks in credit markets driven by an AI funding frenzy. He discusses how increased issuance may lead to vulnerabilities if expectations aren’t met. Rogoff emphasizes sector dynamics, encouraging caution around low-grade bonds while highlighting the importance of quality in portfolios. With a focus on 2026 forecasts, he predicts wider spreads but not an imminent recession, urging investors to remain vigilant amid evolving market conditions.

Mathew Cestar, president of Arini and seasoned credit expert, discusses the rising attraction of European private credit amidst shrinking US returns. He highlights Europe’s 50 basis point premium on loans, driven by the complexity of middle-market, non-sponsor deals. Cestar elaborates on borrowers favoring tailored private solutions over banks, and the unique opportunities in sectors like defense. He also shares insights on managing risks, the importance of regulatory transparency, and the strategic focus on senior middle-market loans for optimal returns.