YouSaid · the spoken record

Armen Panossian

lines on the record: 75
first: 2023-09-22
most recent: 2023-09-22
sittings or episodes: 1
sources: podcast

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“Investing and finance with knowledge of an industry, then you are able to generate or drive change that it can be quite meaningful and positive, change that could save lives or change lives. I never expected that I would feel that way about investing. I thought investing was just a means to an end. It was a means to just generate an income and live a comfortable life. My father is a blue collar worker. He's a contractor and he would always kind of tell me when I first told him I wanted to go into either law or business, he said, you know, you're not really building anything. You're not, what good is that if you're not really building anything? And I think that I've realized that I am building something, or I can be building something in finance. I didn't appreciate that before. I certainly appreciate it now. I do think it's a fantastic industry for those who want to do well by...”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“30 or 20 years ago of 25 years ago when I thought about a career, I thought that investing was monolithic. I thought that it was you just kind of invest in stocks and that's about it and you have to think about brands that do well and growth. But I think that what I know now is that, and again, this is consistent with some of my other comments today has been that if you do take a multidisciplinary approach, if you do marry”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“Then make a fraction of which you're making after doing eight years of school, learning the same surgery over and over and over again to be able to repeat it over and over and over again as a professional and not really innovating as much as you thought you would. Whereas in finance, you actually do have the opportunity to innovate even in a place like medicine. And I think that that's an important way to kind of contextualize finance as a career versus other things where you have the opportunity to be flexible and you have the ability to make a change if you so desire.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I think it's a couple things. And I know others have said this on your show before, but it's be patient. I think that that's very important because I always took the early part of my career as education or an opportunity for education as much as it was employment. And I think my employers appreciated it because I wasn't trying to be a portfolio manager before my time. So I think that's advice number one. Advice number two is remember that you have it good. If you have a job as a young person in finance, whether it's an investment banking or consulting or buy side, sell side, you have it really good. You have it good in that you're learning a lot. You have the opportunity to learn from good people, smart people, and you're not, there's a lot worse of a job that you could have. Like, for example, medical residency. You could have gone to eight years of school.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“But I think that the stretch was probably too much, and eventually his children and descendants became cons as well, and they fought with each other and therein was the creation of other countries. The takeaway for businesses, if you want to build a sustained empire, you have to do it more carefully and maybe over a shorter period of time.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“Periods in history and people in history that have made an impact that you can actually withdraw or you can garner some lessons in life out of. And in the case of Genghis Khan, there were some, obviously some tremendous accomplishments that he made, but I think that he probably did too much too fast and it was not a lasting empire as a result of its reach. So there are some takeaways for business that you get from there. And I also enjoy kind of Soviet history as someone as an Armenian, the part of the Armenian history that was under the Soviet Union is interesting to me. I've read Mikhail Gorbachev's. I enjoyed reading Mikhail Gorbachev's autobiography as well. And that sort of thing. I'm not really into fiction or entertaining reading. It's more about...”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I'm reading Genghis Khan and the Making of the Modern World. I know that's not a new book, but I really like the books about...”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“For having done that, but I think I look back on my mentors and I think Mark for sure was one of them. And then one of my mentors, he was one of the first employees of Providence Equity Partners. His name is Al Dobron. He was my associate at Morgan Stanley. He was the one that actually convinced me to delay going to law school and work in Morgan Stanley for two years and work 100 hours a week. But it exposed me to an industry, a career path, the possibility of investing as a career path that I otherwise would not have seen. And so I think that when you look at your mentors, even though maybe time with them has been short, the impact can be material if you interacted with them at a point where they're a critical decision had to be made in your life, either personal life or career life.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, absolutely, Bruce Karsh is at the top of that list. I've had great mentors over my life. Mark McClellan was a mentor for me in college. And again, the multidisciplinary approach to his life opened my eyes to also being multidisciplinary and between law, business, medicine. And we, as a result of that multidisciplinary approach a year or so ago, we launched a very large life sciences lending fund, which I found personally gratifying because it gave me a conduit and it gave Oak Tree a conduit to use our skills, our hard work, in investing in a very difficult space in biotech and pharma to change the lives of people, to save people's lives. And I think that's the pinnacle of how investing can be positive in impacting the community and society. So I'm very grateful.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“Absolutely. Well, and they're bringing a Formula One race to Las Vegas for the first time in November. And so from just a business standpoint, seeing the impact that media can have on a brand like Formula One that was underpenetrated in the US, I think there are lessons to be learned from a business standpoint by focusing On content that is unrelated to finance. I mean, I know there are folks that love to watch billions or love to watch or love to read about finance or investing. I tend to not like watching shows or reading books about investing. I like kind of going the opposite direction and spending time with content that is completely unrelated to my life.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“Absolutely. Well, absolutely listening to your podcast for sure. So thank you. But in terms of streaming, I really like the more documentary-oriented streaming content. For example, the Formula One Drive to Survive, looking forward to the next series there.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“So that group is an advisory group attached to the economics department at Stanford and supports graduate research and undergraduate research in economics for a variety of different types of studies. It allows me to stay close to the university and talk with economists and academics that look at the world differently. And I think help to give me a different lens. It also helps me kind of stay in touch with some of the other members of that advisory board that are in the investment management industry and other industries that also help kind of expand my universe. I think an investment management, it's a negative if you become too myopic. and have too many blinders on. It's kind of good to look to your left and to your right and think about what other people are seeing.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“And the same penetrating questions that she asked to people in Senate hearings is the way I felt every day in bankruptcy class. And I learned a lot, but it kind of left a mark. And that's, I would say, that experience was one of the reasons why I gravitated towards distressed debt early in my career when I joined Pequad in the distress group.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“The JD and the NBA I did after I worked at Morgan Stanley, I started at the law school, but then that's around the time or right after the time that the dot-com bubble burst. And so I thought, you know, now's about as good a time as any to stay in school. And so I applied to the business school, to Harvard Business School, when I was the first year in the law school and was lucky enough to get in. And that was a fantastic opportunity to learn from a lot of great classmates, some great professors, a lot of guest lectures that came in that were captains in their particular industries and learned a lot there. But when I emerged from the JDMBA, I thought about what did I enjoy in school the most? And frankly, it was bankruptcy and reorganization and interesting tidbit. My bankruptcy professor in law school was Elizabeth Warren.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“So, I was an econ major, but my advisor was Mark McClellan, who headed the FDA as well as the Centers of Medicare and Medicaid at different points in his career. And so he straddled being a professor at Stanford Medical School as well as a professor in Stanford Economics Department. And I thought that multidisciplinary approach to his career was interesting and could be of interest in my career. So when I decided to go to To Morgan Stanley and work in the MA department there in the late 90s, a good portion of the deal flow I did worked on was healthcare related, biotech, pharma related. And I find that to continue to be an area of interest for me. I'll get to the law and law and business in a moment.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah. Well, I wish I could say that it was all intentional. And it's absolutely not. I entered college not knowing what I wanted to do. My oldest brothers were surgeons or our surgeons. So I thought naturally I should be a surgeon. And then when I was a freshman in college and taking pre-med courses, I visited my brother at the emergency room at USC in Los Angeles doing trauma surgery. I passed out seeing him treat a bullet wound. And when I came to, he said, you're not cut out for this. And he was right. I am not cut out for being a doctor. But I still valued healthcare, life sciences, biotechnology as important areas of the economy and things I've just found naturally interesting and curious. And so I kind of pivoted and became effectively a health economics major.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“Next year. But again, we're not macro forecasters here. It's more about based on the conviction that with or without a recession, we're going to see elevated defaults. With or without a recession, we're going to see a tightening of the availability of capital. And those two factors, defaults and tightening availability of capital, should at some point cause a recession.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I don't think high rates help debottleneck these issues that you pointed out. In fact, they definitely hurt. And that's why I do think that there is a reasonable chance of a recession because I think that the Fed will, all else being equal, keep rates higher until something material breaks. So I don't think that we're going to see the debottlenecking. I do think that if I only had a dollar to bet on a recession or not a recession, it would be for a recession.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“That's when I think the bite will be felt, but that's probably not in the next 12 months is my best guess. And I can't really point to a reason why other than I do think that there is this real shortage and there is that shortage is causing a material increase in the rental rates for multifamily housing.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“Will shrink in home building. And I think when you combine new home sales declining and new home construction and multifamily construction declining.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“We are still continuing to see home builders sell new homes. We're not seeing as much velocity in the sale of the secondary sale of homes, but home builders are still selling homes, and that's because there is a shortage of housing stock. There is a shortage of multifamily and single-family housing. And the home builders are able to charge a high enough price that they're able to buy down the rate for their buyers. So for now, at least, because of that shortage, it is cushioning what would otherwise be probably a challenging picture economically for the home building industry and just housing overall. Now, there will come a point where the home builders will exhaust their low cost basis in land. The cost of constructing a home is higher today than it was three years ago. So there is real inflation and cost of construction. And so those margins...”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, it's a great question, and I don't have the crystal ball, but I would tell you right now, even though the rates have been high now for 12, 18 months, and the mortgage rates have been out of the money in terms of a refi now for the better.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“The only time that it's not been average is the last 10 years. I mean, you could have gotten a 30-year mortgage at $3,000, 3.45% at its lows, but that was unprecedented. And I don't think we will see that anytime soon.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“In rates at this point in time, and I would argue that, and this is consistent with Howard Marx's sea change memo, that We are in a period of time where rates should be expected to stay high for long, not longer, but long. And in the context of the last 40 years, where rates are today are not meaningfully out of whack”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“But when you don't fight the Fed, just don't fight them in both directions is what I think. I mean, and I think you're right, Powell has been very clear. And I think that the Fed, for those in the market that are economists, there is an academic need for having the right level of rates. The reason is because in the future, when you do have a shock and you do need monetary policy to correct for that shock, you need high rates to be able to reduce those rates and correct for that shock. And for the last 10, 12 years, the Fed has not had that lever. And it finally has the opportunity to build that lever in and retain it if it's careful about or precise about when it decides to pivot or what it says around a pivot. So I think that the Fed is predisposed to leaving rates high longer because of this academic need and because the data supports it too. It's not like the data supports a quick pivot or a significant decline.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“It's odd to me too, to be honest with you, because coming out of the financial crisis, there was a mantra that don't fight the Fed. And nobody wanted to fight the Fed when the Fed was reducing rates. I don't understand why people want to fight the Fed when they're increasing rates. I mean, it's.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I'm really watching what the market and the economy are doing rather than hinging on every word that the chairman has or says. Obviously, the information that the Fed has is very important, that is, in terms of digesting what's happening with the economy and the likelihood that they pivot or not. So I would say it goes into the same theme as being macro aware rather than really making key decisions based on every word that the Fed has.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“Our clients are primarily large institutions, global. We do have a retail client base as well in the form of our publicly traded BDC, but the overwhelming majority of Oak Tree's clients are very large institutions that have invested across a variety of Oak Tree strategies, not just a single one.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“Rely on just lending to private equity sponsors to generate returns. We have opportunistic credit capabilities. We have non-sponsored credit capabilities lending the companies that are publicly traded that need capital not for a buyout, but for some strategic growth initiative. So our particular book is quite balanced and is quite clean relative to where we think the pressures will reside over the course of the next 12 months. So we feel good about our ability to kind of lean into the market. And we also manage our private credit book far less levered than what is ordinarily the case in the market. So we are cautiously optimistic that the cracks that we are seeing in the older vintage private credit, the older vintage broadly syndicated loans, will create opportunities for oak tree in our sort of brand or style of private credit.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, for private credit in older vintage deals, especially those that were backing private equity sponsors in transactions, I think there will be elevated defaults in risk, especially in the weakest, maybe 20 or 30 percent of private credit portfolios. We see this because we are, we manage a publicly traded BDC, and so do a lot of our peers. And so we watch the pressure building up in some of the publicly traded BDCs, the way they announce non-accruals or amendment activity of underlying borrowers. And my expectation is that generally speaking, if investors were to watch the publicly traded BDC market, they will see an escalation in those types of risks that are reported by the BDCs. We have a lot of capabilities in terms of private credit. So we have not had to rely on.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“It is, and we are in an election cycle now, too, with an incumbent running for reelection. I would expect that if there's any pressure on more stimulus, if there is pressure on stimulus, it's to the upside, not to the downside at this point.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“decline in availability of capital, of lending, and therefore recession. And that's why an inverted yield curve has historically been highly correlated or 100% correlated with a recession because the cost of borrowing in the short term is higher than the long term. And that doesn't work for banks because they borrow short and lend long. So it just means that the Fed is telling banks stop lending and to corporate borrowers stop borrowing for the purpose of investing in your business. That will impact the economy. That should create a recession. I think the reason I say should and not would is because we also have stimulation by the Biden administration in the form of infrastructure bills, in the form of green manufacturing capabilities, re-onshoring of certain types of manufacturing. And that's stimulative.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm talking about the actual economy itself. Growth slows down, investment in certain types of capital expenditures slows down. The availability of capital becomes more challenged and there is an increase in residential foreclosures. Something that means more than just a bank failing here or there because of a duration mismatch. That's really what Silicon Valley Bank was. Silicon Valley Bank's failure is not enough for the Fed to do anything. And we saw that. I mean, they really did not pause at all. And so I think that as we look forward, I don't know how we actually avoid a recession because I don't think that we will, I don't think that the Fed will have enough data to support a decline in rates or reducing rates without a recession. And so if rates stay higher for an extended period of time, higher for longer, then that in itself could cause a”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“Starting to take up. So we might be at the inflection point now, and it's always confusing when you're at the inflection point where when you look at historical data, backward-looking data, it shows a different picture than what the forward would indicate. I think it's hard to avoid a recession with such high rates. And with the inverted yield curve, eventually what that says to me is the Fed is going to keep rates as high as possible for as long as possible until something breaks in the economy.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“The indicators are sending mixed messages. Obviously inflation or control of inflation is heading in the right direction, but still not the level that it needs to be at for the Fed to pause raising rates. The employment picture or the unemployment picture is actually quite stable. Consumer spending is stable, although credit card defaults and other consumer ticketing.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“Real estate that values itself based on cap rates, which is a derivative of the 10 year treasury. That's an example. Another floating, another interest rate sensitive asset class, or LBOs, highly levered leverage buyouts supported by floating rate liabilities. That's an interest rate sensitive asset class. So we are macro aware that definitely I think tips the scale in some ways in terms of, you know, is there a bigger investment opportunity coming or a smaller investment opportunity coming? But at the end of the day, the companies we invest in are bottoms up or based on bottoms up credit analytics that we have the conviction and will return par plus accrued through a cycle. And if they don't, we're happy to own them at the valuation that we are creating that company at.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“We're bottoms up credit pickers. We are not macro forecasters, but we are macro aware. Understanding what's happening in the economy with technicals in the markets, those influence or can influence the performance of certain sectors, for example, interest rate sensitive sectors that may be impacted in a more violent way because of the rapid rate increase, as an example.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“You're just there. Yeah, it was the structures that were put in place prior to the GFC. Unfortunately, were not conducive to that type of, you know, some would call it a six sigma event. I don't know that it was, but that type of an extreme reaction in the markets and withdrawal from investors out of the markets so rapidly. These structures just weren't set up for it.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, they were grateful at the time, but then when they saw our returns, they, you know, they were pretty upset about it because you didn't make them.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“Because when you are investing, the rest of the world is fleeing. And so you are calling capital when your clients are hearing from the rest of their investment manager that it's an absolute bloodbath out there. And so answering those questions takes some fortitude. But the good news is at this point, Oak Tree is so well known for taking that type of contrarian bet that we're not suffering from that as much. But it certainly is an important feature of being a distressed debt investor.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“Would like to be, calm, cool, collected, very, very strong instincts about people and businesses and behavior and the willingness to have a tremendous amount of conviction, especially when others don't have the conviction. I think Bruce has shown that time and again in his career. And so having the opportunity to learn from a guy like Bruce Karsh has kept the job really interesting. And I haven't felt that 16 years has gone by slowly at all. I think it's gone by very, very quickly.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, oak tree culturally is a very stable organization. You've met Howard several times. You know that Howard is not somebody that changes his stripes and therefore oak tree is not a place that changes its stripes, which is great from a career standpoint because as a firm, you know that they're not going to take wild risks just because everybody else is taking wild risks and then jeopardize the firm's existence as a result of those risks not panning out. We see that all too often in the hedge fund space and other with other investment managers really going a little bit too far out on the risk spectrum in their investment style and therefore blowing themselves up and creating volatility in the lives of people that work at those firms. Oakree has not been one of those places and I think personally working directly for Bruce Karsh has been part of the reason why a main part of the reason why I've decided to stay at the firm as long as I have because he is the type of person that I think any investment.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“Absolutely. I think to do a good job running Oak Tree, we want to be as close to our clients as possible and to be as close to our clients as possible would mean that we need to be as close to the markets and actual investments as possible. When I sit down with clients, I think if I bring any value to the table, it's giving them really on the ground knowledge about what we're seeing in the markets from a risk and return standpoint. And I think it's important as the CEO to also to have that framework.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“And so today we benefit from the efforts taken by Jay to have a very professional organization. That non-investment side of our business will be managed by Todd Moltz, who is a veteran of Oak Tree, chief administrative officer of Oak Tree, and former general counsel of the firm. So he will be taking on a lot of those institutional non-investment areas of the firm. And Bob O'Leary and I who run the opportunistic credit business in Bob's case and in the performing credit business in my case will take the mantle in terms of strategic leadership of the firm as co-COS.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, it's been, you know, I've been at the firm for over 16 years. And the firm was founded by Howard Marks and Bruce Karsh, two investors. And so the model for Oak Tree has been that we would have investors overseeing the firm overall. We went public in 2012, and that entrepreneurial history of Oak Tree since its founding required a little bit more institutional framework. And so we did have a dedicated CEO, Jay Wintraub. We did a great job of institutionalizing oak tree further and all of our business processes away from the investment side that Howard and Bruce continue to focus on.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“When spreads widen, it either means that there's risk of default that's higher, which I don't think is the case in this new vintage. I think it's more a technical imbalance between the demand for private credit versus the supply of private credit. And that's what's caused that meaningful widening. And there just is less competition from the banks. The banks were the alternative financing tool for private equity sponsors wanting to do an LBO. And with those banks taking a step back because of their syndication losses in 2022, it created attractive pricing opportunity for the private credit lenders to step in where the banks were stepping away and expand those spreads pretty meaningfully.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so the spread back then in the easier times, the spreads were generally 475 to 550 over sofer for the equivalent risk today that is being priced at 625, 650 over. So it's about 150 basis points wider in just 18 months. And that's in addition to sulfur rising as much as it does.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“Exactly. The typical loan today is price that's so for plus six to six and a half percent with about two or three points of discount on origination. And again, the equity checks being written by the private equity firms, generally speaking, are over 50% of the capital needed to buy the business.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“Getting 12% to lend to that size of a business with that type of backing from a household name type private equity firm. It's a very attractive risk adjusted return. And I would say it should be part of an investor's credit appetite. And frankly, I think it favors credit or the topic we're discussing about favors credit over equities, actually, over the next few years. Because if you think about the size of the corporate pie, with COVID-19 and with inflation, the size of that corporate pie generally hasn't changed too much over the last few years, but with a sudden increase in rates, essentially the Fed has said, well, I'm going to slice off more of that pie for creditors than I am for equity. And that was the opposite in this easy money period following the global financial crisis and ending in the 2021 timeframe when QE was then reversed with inflation.”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source
“It's from an absolute return standpoint, treasuries, IG corporates, or high yield bonds are more attractive than they've been in very long time. They are, as long as an investor has the willingness to own a longer duration asset, they are very attractive investment opportunities. And we would recommend investors buy a basket of those types of securities. Now, in the case of private credit, you do pick up a lot more return in exchange for the complexity of the situation as well as the illiquidity. In the case of private credit to large businesses, these are companies that have 100 million of EBITDA or more or have an enterprise value of a billion dollars or more. And they're being bought out by private equity firms. The pricing we're seeing on first lien debt in those types of situations is about 12%. But from a relative value perspective and a risk-adjusted return perspective,”
2023-09-22 · Masters in Business · Armen Panossian on Credit in a Time of Rising Rates · IDENTIFIED FROM THE TRANSCRIPT · source