00:00UBS strategists say that private credit default rates could surge 15 percent if AI triggers an
00:05aggressive disruption among corporate borrowers. That follows Blue Owl's new limits for retail
00:11investors in one of its private credit BDCs and a report from Citrini Research that says AI could
00:15lead to a double-digit U.S. unemployment rate by 2025 and also discuss fears in private credit.
00:21Let's discuss with Bloomberg senior reporter Silas Brown. Silas, I gotta say it feels like
00:25we've hit a fever pitch of whether it's Boaz Weinstein, Jamie Dimon, one of the people from
00:32the big short fame, Danny Moses. It's like a who's who of warning about private credit right now.
00:37Yeah, and as I sort of said earlier, I mean, if private credit was a species, it's been able to
00:43evolve without predators for most of its history. And now you're seeing kind of increasingly
00:49critical voices. I mean, a few years ago, it was quite hard to find a public, you know,
00:53someone who would publicly be critical of private credit. Now, I don't think you need to walk too
00:58far to find someone who has some choice views about the industry. I mean, such is the nature
01:02of sentiment. I mean, I think with the UBS report and default rates, I mean, I think I'm always,
01:09default rates are kind of funny in private credit because of the bilateral nature of most of the
01:13transactions. They can renegotiate terms. And so there's somewhat flexibility when it comes to
01:18default language. And I think the interesting thing for that I'm kind of paying attention to is
01:23or will be paying attention to in the long term is recovery rates. You know, whether or not private
01:27credit that has often has more control in negotiations, given that they have, you know, bigger positions
01:33in the capital stack, whether or not their recovery rates can kind of match or outbeat the syndicated
01:41markets. Hey, I wonder, you know, I was reminded in this Trini research piece at the end in the
01:48comments by, I think, a guy named Peter, and that's all he gave in terms of his identity, that it
01:54doesn't
01:54really matter whether or not AI is going to eat the lunch of software as a service companies, but the
02:00perception is enough to be a problem for negotiating the price of those services and then the default rate
02:06as well, Silas. Have you had those conversations with investors? Yeah, I think it's, you know, it's to
02:13do with the does the does the dog wag the tail or is it vice versa? And I mean, I
02:18think in this, I mean, look,
02:20we still see a relatively stable market. I mean, there's not not a huge amount of stress yet. But I
02:27mean, I
02:27think that hasn't impacted sentiment too much. And I think people can see that with a kind of paradigmatic shift
02:34in
02:34in technology, in such a darling of a sector, that that will surely have quite profound consequences on not only
02:43private credit, but by the way, also private equity. And I think we the deals that we're tracking now, I
02:51think we're
02:52paying very close attention to whether or not there's margin pickups. I mean, I think you can see that in
02:56the broadly
02:56syndicated markets, to a certain extent already. And I think the fair expectation is either 50 basis points 100 basis
03:04points
03:04pick up on certain credits that will not be able to make a particularly strong case on their, you know,
03:12on their kind of like health in the mid to long term.
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