00:00I will agree with you that high-yield spreads
00:02are at their all-time tights,
00:05but that's for a good reason.
00:06With the advent of private credit,
00:09high-yield has actually moved up in quality.
00:11They decided to take their ball and go home.
00:13So you are actually seeing historic tightening
00:18because about 60% of the index is now double B,
00:21one notch below investment grade.
00:23But where we are seeing opportunities,
00:25and the really great opportunities
00:28in credit opportunities really come
00:30when there's a high volatility and poor selling.
00:33We do have some higher volatility,
00:35but the real for selling isn't there yet.
00:38And I will touch upon really quickly
00:41where we're seeing opportunities today.
00:43But what's really unique about sort of what this time
00:48in the industry and for the first time in my career
00:53is that there is a pipeline of defaults
00:58whether we have an intense economic cycle,
01:03whether we have a recession or not,
01:05we are going to have a default cycle
01:07because there is a pipeline of defaults
01:10that are already baked into the system
01:13from the LBO, what I will call LBO bubble from 2021.
01:18And that was $2 trillion of transactions in 2021 and 2022
01:24in some of the most highly levered balance sheets.
01:28And there's about $165 billion of LME paper.
01:34That is some of the worst paper in the industry
01:37with 66 issuers.
01:40And even the super senior paper
01:42is now trading at the stress levels,
01:44average price in the 70s.
01:46And that's $90 billion,
01:48and there's another $75 billion that's subordinated to that.
01:51So those are defaults that are ready to go.
01:54And when you have that level of default,
01:57you are going to have some force selling in the markets.
02:01But in addition to that,
02:03there is a maturity wall
02:05that's never really come into fruition.
02:08It was actually one of the biggest boogeymen
02:10in the industry.
02:11Maturity wall is going to get solved.
02:14In this instance,
02:16because the refinancing market was so wide open
02:19in 2024 and 2025,
02:22we have an additional $500 billion of maturities
02:26in the next two years that need to be met.
02:29And a lot of those companies didn't refi
02:31because they couldn't access the market.
02:33So we're talking about a big sort of backlog of default
02:37away from any economic or dislocation
02:43from consumers changing their behavior
02:46from the oil shock
02:47or any other inflation-related economic input.
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