Credit Exchange with Lisa Lee

• Investors optimistic, bullish on European structured credit – BofA, King Street, Blackstone, Federated Hermes

  The mood at the Global ABS 2025 structured credit industry confab this week was positive, according to bankers, asset managers and investors at the Barcelona conference. Taped (mostly) live in Spain, Credit Exchange host Lisa Lee caught up with guests from Bank of America, hedge fund King Street, Blackstone and Federated Hermes.Alex Batchvarov, managing director, global research at Bank of America: When we take a look at the macro picture, there are certain changes which are gathering speed, and I think to some degree – maybe to a large degree – are irreversible.The capital flows are changing direction. US exceptionalism is now being questioned.[For] the structured finance sector, there are not many reasons for concern with regard to credit performance or structures or documentations.Young Choi, global head of trading at King Street:The tone was relatively constructive. There seems to be a preference from the crowd in Barcelona for European credit versus US corporate credit.A couple of years ago if you asked that same question, it would have been reversed. There were a lot of things that concerned people about Europe. It hasn’t completely flipped, but I think the narrative has definitely changed.Alex Leonard, senior managing director and head of European liquid credit strategies at Blackstone:We're definitely seeing a lot more investors coming from wider locations. Previously it would have been primarily European-only. We’re now talking to Asian investors, Canadian investors, African investors, all wanting to discuss that opportunity in Europe with Blackstone. So I think that’s positive.We do clearly need to remain cautious, but certainly, looking at the fundamentals and the real data we’re seeing across all of our portfolio companies, we generally continue to feel good about European credit.Andrew Lennox, senior portfolio manager at Federated Hermes:There's a lot of issuance in the pipeline, both on the ABS side and the CLO side. We’re going to have a busy post-conference period.We’re starting to see some early signs of a pivot away from the allocations toward the US and investors looking for opportunities elsewhere, and Europe seems to be a beneficiary of that. It seems that Europe is picking up some momentum, whereas the US had it for a number of years. The US may be seen as a less reliable trading partner, but also as an investment opportunity.

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• The M&A market is normalising – Ares’ Matt Theodorakis

  The M&A market is normalising, said Matt Theodorakis, co-head of European direct lending at Ares, in the latest ‘Credit Exchange’ podcast, recorded at the SuperReturn International conference in Berlin, Germany.“People are looking to do deals going forward” after taking a pause following ‘Liberation Day’, Theodorakis told host Lisa Lee, managing editor at Creditflux.Investors – limited partners – are going to want to get paid back. In the next six to twelve months, their patience is going to wear thin, Theodorakis said. “People are going to really start to push and say, ‘Hey, guys, enough. There’s no reason not to start a sale process.’ We’ll actually enjoy the benefit of that.”Before that, 2025 started out as a strong year. Direct lending in Europe has been deploying almost 50% more than a year ago, and the use of proceeds for M&A has been increasing. Theodorakis is particularly extied about how artificial intelligence can impact the private credit business, particularly from the perspective of risk management. As a lender, Ares gets quality and frequently-updated information on their borrowers.“We’ve been doing a pretty good job of it, but if we can turn that info into machine learning [and] getting ahead of trends, that is an absolute game-changer.”

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• Volatility could cause credit markets to break this year – TCW’s Bryan Whalen

  Investors aren’t being paid enough a premium for the risks in US corporate credit, said Bryan Whalen, chief investment officer of fixed income at TCW, on the latest ‘Credit Exchange with Lisa Lee’ podcast.Whalen, who oversees USD 180bn in fixed income assets, contends investment-grade corporate credit spreads should be paying 50% more than they are. Investors should be getting 120 basis points of spread for IG bonds, but today they are getting paid close to 80bps, Whalen said.During the April volatility, there was a repricing of credit risk, but it didn’t lasted long enough to call the markets broken. But markets aren’t out of the woods, and it’s on the list of possibilities this year, according to Whalen. There are a lot of things that could cause volatility and if the Federal Reserve seems reluctant to rush to rescue markets, “you might actually see the market is broken because of the lack of liquidity,” Whalen said. “And it will stay broken, and that will magnify the downturn.”While Whalen likes being underweight corporate credit, he sees attractiveness in parts of the securitised market – mortgage-backed securities in particular, because some buyers that have traditionally been in the space have temporarily pulled back. Moreover, while Whalen doesn’t like US high yield bonds, he does like some high yield bonds in emerging markets. Asia has the potential to outperform relative to the rest of the world. On European growth prospects, markets may have gotten a little ahead of themselves on the narrative of a fiscal spending boost, and taken a pause on the approach of what Whalen describes, tongue-in-cheek, the “exporting of exceptionalism.” Still, there are some good opportunities in euro-denominated investment-grade corporate bonds, where investors get paid a decent amount of additional spread for the same company in a euro currency versus US dollars, he noted.

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• Credit markets have become more stable and behave differently – KKR’s Eddie O’Neill

  “Look at credit markets, they behaved quite differently this time,” said Eddie O’Neill, co-head of global liquid credit at KKR, about the period of volatility that whipped global financial markets in April. “They were very stable.”When equity markets were volatile, credit markets did see some selling off but in a very orderly repricing of risk. There was “no blood in the streets, no sustained buying opportunities,” O’Neill told host Lisa Lee at the Creditflux CLO Symposium 2025 in London. That there were three reasons: 1) the nature of the shock, which is policy driven, would take time to play out and the end result of it is still fairly unknown; 2) credit markets have matured in the last five years with new pools of capital becoming more significant; 3) the markets have been starved of assets and been technically driven through 2024 and 2025 with money on the sidelines waiting to step in.The European credit markets are more stable than the US, contended O’Neill. There is no significant ETF buyer base in Europe, the fundamental health of European corporates is pretty good, and Europeans have had the political realization that they need to turn things around. It's not without risk as maintaining political cohesion in Europe is difficult. Europe still has an Achilles' heel---energy costs and demographic will be a challenge. KKR is generally more bullish on Asia, said O’Neill. Despite the tensions between the US and China and slowdowns in the Chinese property market, Asia has the potential to continue to be a big driver of global growth. Asian credit will become a very big market over the next number of years, and investors should be looking at the region, he said. In particular, the investment grade credit market in Asia currently delivers significantly greater returns with lower defaults and loss rates compared to the US investment grade market.

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• Private equity will help private credit weather troubles – Neuberger Berman’s Susan Kasser

  People fail to give the private equity funds the credit they deserve, said Susan Kasser, head of Neuberger Berman Private Debt, on the latest ‘Credit Exchange with Lisa Lee’ podcast.Whilst in terms of investment opportunities, it has been a less productive start to the year, private equity funds have found interesting investment opportunities. Neuberger Berman has already committed to financing a number of new leveraged buyouts this year. There are a surprising number of companies that appear to be quite insulated from tariff exposure and are pretty recession-resilient as well – to a much greater degree than might have been expected, Kasser said.The beauty of a portfolio of privately-held, privately-negotiated, untraded loans is that concerns, volatility and market sentiment don’t really affect the loans, Kasser told Lisa Lee, managing editor of Creditflux. Rather, the only thing that does impact the loans is the fundamental performance of the companies being lent to. “That will take some time to figure out, but it looks like all should be well,” Kasser said.Kasser noted that an element of the underwriting that people miss is the importance of the private equity sponsor. They have three advantages in fixing a problem. These encompass control (they can make any change they want to), time (they don’t have to exit at any point in time), and capital (they have capital to support existing investments). A lot of problems, including things like recessions, tariffs, inflation, supply chain issues, and higher interest rates, are, to some extent, temporary and fixable, Kasser said.Neuberger Berman passes on many financing deals, even those that may look like good opportunities. “You just need to decide which way you want to err. And we have consistently decided we want to err on [the side of] capital preservation, margin of safety, zero mistakes for the investors,” Kasser said.

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