Wall Street Shaken by Auto Sector Bankruptcies

Watch Wall Street Shaken by Auto Sector Bankruptcies - Bloomberg on Dailymotion

Transcript

00:00Do you think the first brand's blow-up was indigestion, or could it be something more?

00:05Well, I think it's just emblematic of excessive risk-taking. I mean, that's really what this

00:10embodies here. And we can blame due diligence. We can blame massive concentration. But at the

00:15end of it, this is what happens when people chase yield. And I think what Amanda points out is right

00:20is that when you look at the public markets today, and I think Apollo put this out this morning,

00:25saying 90% of the credit markets yield inside of 5% today. And then that's an aggregate globally.

00:32But if you look at kind of what's happened in the high-yield market and the loan market,

00:36it's what the safety is, appears to be the double B and single B. But when you get into triple C

00:42assets, then that's where you start to see the double-digit yield. So there's this huge gap

00:47between, let's say, single B and triple C assets today, where the market is rejecting some of

00:52these kind of riskier type of products. And so this is what happens when you never thought

00:57we were going to be talking about a spark plug manufacturer and someone who creates like

01:01windshield wiper blades is going to bring down the system. And so I think this is just emblematic

01:05of people chasing yield. There's been this fervor for private credit. Loans are something that feeds

01:10that system as well. And so I think what you're seeing is some of this reckless behavior there.

01:15So is it contagion? It's too early to say that that's the case. There's some big numbers here,

01:19but they're absorbed in larger funds. But I think it's emblematic of the risk-taking environment

01:24that we've seen over the last year or so. Amanda, there is an argument that if there are

01:29blowups in leveraged loans, like at First Brands, there are worse, things could be worse in private

01:33credit where the borrowers can be weaker and tend to have to make bigger debt payments. How do you

01:38respond to that? Well, I would say actually in the past few years, even especially since the pandemic,

01:43we're seeing a lot more fluidity across the borrower spectrum where the same borrowers are tapping

01:48public and private credit markets. So in many instances, private credit is not reserved for

01:53niche financing situations like it was in the earliest days of its asset class. We actually

01:58think that private credit's ability to step in during periods of episodic market volatility and

02:04public debt markets is a net positive for providing funding access. And actually, fundamentals have been

02:09holding up really well in private credit. We've seen improvements in interest coverage. We've seen

02:14the strongest EBITDA growth in five years using the Lincoln International Index. We've seen contained

02:19realized losses. So I think really there that kind of underwriting, structuring due diligence

02:24is a value add in terms of taking credit risk. And I would push back against the idea that

02:29the borrower cohorts are significantly different because, again, we're seeing more fluidity across those

02:34markets.

02:34So I think, I feel like when it comes début to imitate the toxicity of cellular

02:48markets, I think, should talk about my legacy. And, you know, in the past few weekends,

02:54it's a Produced by Coronavirus and theunteer'sora yogurt. However, I give kind of, of a