00:00Even with a 60 percent drop in inflows there was still money going in right. Let's be clear. Definitely. Yes
00:05we're still seeing money going into these private credit vehicles. It's just a bit less than was going in before.
00:10What about redemption requests. How does that fold in with the kind of data that we saw. I think it's
00:15the start of that story where we're seeing a rise of redemption requests and that in turn brings down inflows.
00:19And we kind of just have to let that cycle play out and see if BBCs will be able to
00:23pick back up on the inflows they get into the funds. And that's a big question whether that cycle continues
00:28in the second quarter. We already saw
00:29make a mark in the first quarter. So Olivia stay with us because we've also been covering an incoming wall
00:34of debt maturity. According to Moody's private credit funds with outsized exposure to software and tech loans. They face rising
00:42refinancing and credit risks. Mark Pinto is global head of private credit at Moody's and he joins us now. So
00:48Mark walk us through what we're seeing for 2028 and beyond. Yeah. So maybe just touch on software for a
00:54second. Right. So you've got about 25 percent on average software concentration at the BDS.
01:00Many of them have refinanced. Many of them have refinanced their positions such that we do see some wall coming
01:07up in 2829. We think this is going to play out a little bit slower in the fixed income market
01:13unlike what we've seen in the equity market. We're looking at the software companies very carefully and what we're focusing
01:19on are things like billings and client retention. And unfortunately looking at the numbers now we haven't really seen
01:29any kind of deterioration. That may happen going forward. But right now the numbers look pretty good. Revenues continue to
01:36rise. But I think in the second and third quarter that's when we can start seeing some things coming through.
01:41How are these business development companies. How are the BDCs addressing this wave of debt maturities. I think you know
01:48there's a couple of different things.
01:49They'll have the choice once these maturities come on to either refinance or no longer finance these companies. So I
01:57think that you know we'll see which companies
02:00they believe still have an investment thesis worth investing in. And I think those companies will be continued to support
02:06it. And others you may see them deciding to exit
02:09from. And we're waiting very carefully for these BDCs to report earnings. And I'm wondering what are you looking for.
02:17What are you guys watching
02:17there. Good question. I think a couple of different things. We're looking to see where leverage is going. We're looking
02:24to see we're looking at
02:26non accrual rates. It's interestingly if you look at the perpetual non traded BDCs asset quality is really good. Now
02:33these are not very seasoned
02:34portfolios. But if you look at the number of troubled borrowers in non traded perpetual deep BDCs. It's only 0
02:41.5 percent in the traded BDCs. The
02:45troubled borrower number is about 2 percent having come down from two and a half percent. We expect these numbers
02:52to normalize or mean revert over
02:55time. And the question is though does it go beyond that. When we see the numbers coming out soon. I
03:01don't think we're going to see a massive movement.
03:03However this may be something that we see in the third and fourth quarter. We showed a video of you
03:08earlier. Mark on a run with Blackstone
03:10President John Gray. He teased that you'd be asking some tough questions at a Moody's conference on private credit a
03:16discussion panel that you
03:18guys are both on. So what was the toughest question you posed to him. The toughest question I posed to
03:22him. John is a brilliant guy.
03:24He's very positive and a very good storyteller. And he talked about the benefits of private credit. And there are
03:30many benefits to
03:31private credit. And I had to kind of pull him back a little bit and say listen the profitability is
03:37coming down and we're probably going to
03:39see some asset quality deterioration. And I asked him about that. And he did acknowledge that this is part of
03:44the markets markets
03:46you know wax and wane. But over time he believes that they are still very good investments and that you
03:54know the returns overall will be
03:55quite good. But we did have to pressure him a little bit on a few things. Yeah we've certainly seen
03:59some markdowns as well. And I ask all of this because
04:01people remember how in the lead up to the great financial crisis ratings companies like Moody's rated CDOs packed full
04:08of those
04:08MBSs as AAA when they ended up being not credit worthy. Private credit loans to tech companies are even less
04:15well understood than
04:16those CDOs and the subprime mortgages. And they're a lot more opaque. So how do you ensure that the same
04:21thing doesn't happen again?
04:23I mean I think it's all down to very good credit analysis and understanding the underwriting standards that these companies
04:32have
04:32employed. We've seen the industry go through a bit of a test right now. Right. So with respect to liquidity
04:39it appears that the BDCs have
04:42taken a licking but keep on ticking. So I think that this liquidity issue that we've been focusing on we're
04:49pretty much past. Although we'll see
04:50elevated redemptions for a period of time we'll likely see them being met at five percent and we'll just continue
04:56to move on. What we're
04:57really focusing on now though is credit quality. And you're like I was just saying before not only in software
05:03but also in the
05:05entire portfolio. So that's what I think we need to be focusing on. And just to bring it back a
05:10little bit. How important do you
05:11view retail to private credit at large. Retail has been pretty important over the last five years. We've seen anywhere
05:18from 200 to 400
05:19billion dollars of retail money coming into this market. And what we've learned is that they bring in
05:26additional risks into this ecosystem. Right. It's not just about gathering new investors but how you take care of them
05:35how you educate them the information you give to them. And I think on the other side of these lessons
05:40that we're
05:41learning right now you're going to see more transparency. I like to call it disclosure more discipline and more direction.
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