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Private Debt, Leveraged Finance, and the Fixed Income Outlook

Top Papers on the Outlook for Global Fixed Income

Uncertainty has slowed the pace of private debt deals in 2020, but if markets stabilise soon, this pent up demand may spell significant opportunity for private lenders. Several of the papers below discuss the outlook for private debt markets. For private equity though, we need look no further than some of the previous crises for guidance - McKinsey & Company suggests that PE firms with in-house teams dedicated to value creation within portfolio companies may fare best. 

Other papers discuss leveraged finance, including the U.S. high yield market's rally so far in Q2, fallen angels, and the effects of additional asset purchases. We bring all of these updates to you in the context of the broader outlook for global fixed income markets.

leverage finance


PRIVATE DEBT AND PRIVATE EQUITY


European Private Debt: Shifting dynamics (M&G Investments, Apr 2020)

For compliance reasons, this paper is only accessible in certain geographies

M&G Investments looks at the private debt landscape in 2019, examining deal flow within multiple segments of the European private debt market. They also highlight the need for strict underwriting discipline and a focus on high quality assets in 2020.

Video: Private debt through the crisis (Neuberger Berman, Apr 2020)

For compliance reasons, this paper is only accessible in certain geographies

Susan Kasser, CFA, Co-Head of Private Credit at Neuberger Berman, provides recommendations for private debt investors in the present-day environment.

Four Lessons From Covid-19 for US Private Debt (Preqin, Apr 2020)

This 10-page Preqin report is on North American private debt, specifically, what lessons can be learned from the GFC, what lessons can be learned from the Covid-19 era, and how the private debt industry might evolve.

Lessons For Private Equity From The Last Downturn (McKinsey & Company, Apr 2020)

To what extent are the lessons learned from the last downturn (the GFC in 2008) still relevant for private equity investors? Firms who buy low and firms that possess a team dedicated to value-creation within portfolio companies may be at an advantage.

PE Investing at Turning Points in the Market Cycle (Neuberger Berman, Apr 2020)

For compliance reasons, this paper is only accessible in certain geographies

This paper looks at investors who actually increased their allocations to private equity in the wake of previous crisis events such as the GFC and the prior technology bubble, and examines how well they fared.


LEVERAGED FINANCE


Leveraged Finance: Bright signs amid the gloom (PineBridge, Apr 2020)

Leveraged finance rallied in April, with spreads on HY and bank loans coming in 100 to 200 bp versus the end of Q1.

Global High Yield Outlook in the Wake of the Pandemic (Amundi blog, Apr 2020)

For compliance reasons, this paper is NOT accessible in the United States

Global high yield markets sold off during Q1 of this year due to the coronavirus, a price war in the oil market, and other factors, but Amundi's analysis of prior peaks and troughs in HY shows that investors have typically had positive returns after such events.

Fallen Angels – The impact on fixed income markets (UBS AM blog, Apr 2020)

The number of fallen angels in existence (bonds that were downgraded to HY from IG) has increased significantly. Ratings agencies continue to assess the ways that this crisis is impacting corporate borrowers.

Long-Term Value Opening Up in Leveraged Credit Markets (Eaton Vance, Apr 2020)

For compliance reasons, this paper is NOT accessible in the United States and Canada

Eaton Vance examines how value may be opening up in core credit markets such as floating-rate loans and high yield debt, exploring the broad, long-term shifts taking place across the market.

The Impact of COVID-19 on Global High Yield (Aviva blog, Apr 2020)

For compliance reasons, this paper is only accessible in certain geographies

Are most companies able to adequately service their bond payments during this epidemic? Aviva Investors Global High Yield Portfolio Manager, Sunita Kara, considers these and other questions about HY valuations.

Bonds: Is BB the new BBB? (Qontigo blog, Apr 2020)

Could BB-rated bonds be becoming the new BBB-rated bonds? Recently, the US Fed added HY bonds to its new asset purchasing program. This has triggered greater demand for these securities and the ETFs that specialize in sub-investment grade bonds.

Smaller Institutions Should Consider Leveraged Finance (PineBridge, Apr 2020)

Smaller institutions may be under-allocating to leveraged finance (high yield corporates and leveraged loans) when compared to their institutional peers. PineBridge discusses why this might be a mistake.


FIXED INCOME OUTLOOK


U.S. Fixed Income Market Update (BMO GAM, May 2020)

In BMO GAM's view, the markets feel much healthier at the end of April than a month ago, but underappreciated in the improved sentiment is not only the scale of March policy action, but its continuation into April.

Opportunities and Qualities in GCC Bonds (Franklin Templeton, Apr 2020)

For compliance reasons, this paper is only accessible in the EMEA region

Franklin Templeton discusses opportunities within sovereign and corporate debt in the GCC region. Due to relatively strong credit ratings (versus other emerging markets) and low coverage by analysts, there may be opportunities for alpha in this region.

Fixed Income Multi-Sector Asset Allocation Outlook Q2 2020 (Invesco)

For compliance reasons, this paper is only accessible in certain geographies

Invesco begins with a macroeconomic outlook for the next quarter before diving into their outlook for fixed income assets. The outlook for global fixed income sub-asset classes includes commentary on fundamentals, technicals, and valuations.

Podcast: Practical implications for European primary debt (ICMA, May 2020)

This podcast is a panel dicsussion between the International Capital Markets Association and two debt capital markets lawyers at Allen & Overy LLP. They touch upon many of the practical implicationis of the current crisis for the European primary debt markets.

Understanding the Global Waves of Debt (CEPR, 2020)

Over the past 50 years, there have been several instances where the global economy has become awash with a wave of debt accumulation. This paper harkens back to the risks at hand during those instances, given the monstrous levels of global debt today.