YouSaid · the spoken record

Wayne Dahl

lines on the record: 83
first: 2024-07-29
most recent: 2024-07-29
sittings or episodes: 1
sources: podcast

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“So, you need financing for data centers. They're definitely growing commercial CMBS deals are available for those and can earn attractive yields. You also have asset-backed securities, which may benefit from the fiber that's being put into those data centers. You need power for those data centers. So you need companies that are focused on power generation. You're certainly seeing kind of a shortfall in some of the power needs to meet these data centers. So finding companies that are going to be on the cutting edge of that, that might come in the form of loans or bonds that can finance those. So again, I think kind of there's a lot of ways to gain access to some of these positive dynamics in the market away from just buying the underlying equities.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, look, commercial real estate is something that can be very easily painted with the brush that says it's all bad and really there, you're kind of looking at one sector, which is the office space, which has not done well and definitely is under stress. But if again, you're willing to roll up your sleeves and do your homework across a lot of that space. There are a lot of good opportunities that are paying you relatively attractive yields still in that space. I think one area which I would highlight, which again touches more than the commercial real estate market, but you did mention the NVIDIAs and the getting into companies that benefit from that AI revolution. Well, there are places in the credit markets that also, I think, are able to.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“So it's not so much how you'll bond market versus loan market, it's subsectors. And I don't want to be too pessimistic. However, this is a credit conversation and credit investors are pessimists because it's the downside you're trying to avoid. The best scenario is you get paid back, which is great. But there's no NVIDIA is going to quadruple on you. So we got to talk about the risks. You mentioned specialty retail and emerging markets as areas where you're seeing the risk there really could be perhaps significant. Are there any other subsectors you are not feeling so comfortable with? What about, for example, commercial real estate?”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“Emerging markets is an area that certainly has a mix of good quality assets that have great yields. And there are some areas of emerging markets where the macro backdrop may not be as conducive. And so you have to be careful, again, speaking to the power of active management over passive management. The convertible bond market, same thing. You could certainly write that off as something, well, it's, you know, you need equities to perform for convertibles to do well and the equity market that their highs and look what's happened over the last couple of days. There are definitely cheap opportunities there. They're not all equities have been hitting their all-time highs like you see some of these tech names. And so I think being open to look for opportunities in each market and avoid the trouble spots has been one of the keys to success.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“Not really so much about a specific asset class. I think it's about certain parts of certain markets. I mean, if you look at the high yield bond market and the loan market, or let's say the credit markets in general, there are certainly going to be some sectors that have a greater potential for volatility and risk going forward, specialty retail is an Xarrier, anything that's more tied to discretionary spending, these are areas that you could see a greater chance of volatility. So it's less about thinking about, I want to completely avoid this market, it's where in that market do I find the best opportunity. And I think that's something that is really key because if you write off an entire market, you might miss those kind of unique opportunities.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“Got it. And then if I were to ask you an asset class where you think the risk reward is the worst, not that you don't own it. And again, you can try and outperform it. The area where in your portfolio, which you co-manage, where you can kind of invest in everything, it's what are you underweight the most”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“You want to just diversify yourself away from a single risk factor that you can. So as I said, some duration, some floating rate, some secured or structured credit at higher yields, I think is a good mix today.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“Of greater than 100, you had borrowers that were low quality FICO scores in the 500s, lots of subprime borrowing. You see a very different market today where loan-to-values are closer to 70%. Borrowers, FICO scores are above 700 in the mid-700. you really have a good quality market house prices despite mortgage rates going from 3 percent to seven percent are up 50 since 2019 so you have a lot of cushion in that market there's a pretty big supply deficit in the in the housing market residential housing market overall and what i like as well is this is an asset class that has a positive boost if we see interest rates decline and we see some pickup or Acceleration and prepayment rates. So I think a lot of things work well for that RMBS market. And again,”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“Look, I think there are certainly cases to be made for each of them, as I said before, today even more so than in the last year, having some balance between longer duration assets and shorter duration, higher interest paying assets is a good mix today. I think overall you are seeing some still relatively attractive pricing in the structured credit market. You mentioned non-agency RMBS. I think that is a pretty attractive place right now. And again, many people will think about wasn't the mortgage market the source of problems in a financial crisis? I don't want to own that if we're going into a recession. But market, that RMBS market is very different than it was pre-2008 in that period. You had loan to values that were near 100, sometimes even.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“The broader loan market as a whole. So that's been one of the drivers of making CLOs, I think, a very attractive investment for public fixed income investors like us”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“Collateralized loans or these securitized assets weren't they the source of the financial crisis itself. And really CLOs just don't have the same default rate that some of those mortgage-backed securities did, even at the lower rated tranches in the double B and certainly triple B tranches. And a lot of it is because if I buy a new issue CLO today, that new issue CLO, as you said, is really buying that top, you know, 75% of the market. So I have a pretty good quality collateral pool, which on average is at a higher quality than the overall market. And in order for me to be impaired in even some of those junior tranches, I need significant defaults to occur. But again, I need them to occur in a higher quality collateral pool than.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“Legacy CLOs will definitely own some of that institutional buyers that have loan-only funds will certainly own that. There's a number of different places and people who have that on their balance sheets. Again, from a refinancing standpoint, as we talked about, private credit has taken some share of that more last year than they have before. It's spread out. But again, I mean, CLOs, you're right, are certainly the financing or the buyer of the majority of the higher quality or top 75% of the loan market. And why I think that's important to note is that when people hear about CLOs, even today, they often think back to the 2008 financial crisis and think about, you know, weren't those”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“So there's been in the low market, there's been more leverage, more downgrades. But you said on a previous call that when CLOs go into the market, it looks at 75 to 80% of the market and you had an interesting view about who was financing that bottom 20% of the market. Is it legacy CLOs?”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“Yes, that's correct. A lot of the activity in the loan market has been refinancing loans. As I mentioned before, some of those loans that were issued in 2022 or even 2023 have been able to come back into the market, get lower spreads. That's why it's, you know, you kind of have that counterbalance between a high yield issuer refinancing into higher coupons and loan borrowers refinancing into lower coupons.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“Now that's been a good thing because I think that's helped push back some of those pending maturities that were going to happen in 2025 definitely previously in 2024. So there's positives that you've helped the market maintain its need for capital. But as you said, spreads are tighter. you've had some instances of excess capital coming in and pushing those spreads tighter.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“There's definitely a lot of capital that is available to be invested. I mean, you're right. Rates are higher. And so the cost of money has increased. But you've had a lot of capital that has been enjoying earning a 5.5% yield by rolling three-month treasury bills. And people know that eventually that capital is if the Fed cuts rates, I'm not going to be able to earn that same amount. And so there is some of that money maybe coming out into the credit market seeking to lock in some of those higher yields for longer, knowing those rates are coming down. And you've seen that in refinancing numbers. If you look at the broadly syndicated loan market, if you look at the high yield market, both of those markets have seen a significant uptick in issuance this year over what we saw in 2023.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“And a lot of passive funds get redemptioned, I mean, especially in the ETF. So that's why they need to own a lot of liquid stuff. If a billion dollars comes out, they've got to sell that stuff. So that's why they need to own that. And active managers who don't have that issue can buy the more illiquid product. So Wayne, earlier, you said a quote about Howard Marks talking about when money is easy. Money in terms of the risk-free rates, it was definitely easy when interest rates were at zero and it is definitely not easy at 5.3. We can debate about R star. But just looking at credit at the spread, forget where the risk-free rate is, is credit easy right now.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“Duration hasn't really cooperated for the full year. It has maybe over the last few months. So if I had a longer duration portfolio in the higher quality part of the market, I've underperformed. If I could balance that with good credit selection and a limited universe, then I've been able to either keep up or potentially outperform. So that inability to transact in all names and kind of being forced to go where liquidity is. And I have to do the least amount of potential credit work and really seek to avoid those credit problems. It's just much easier for an active manager to navigate that market than a passive fund.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“To 8.6. Only 28% or under 30% of the market is trading within that plus or minus 100 basis points. So being an active manager and being able to determine how can I construct a portfolio that looks more like the index and determining what to avoid, what should my balance in tighter spread, higher quality names be versus some higher spread maybe lower quality names is much easier for an active manager than a passive manager. And I think that's why you've seen some of this outperformance this year in active management because number one.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“See that about 75 of those indices is trading with a spread actually below 300 basis points. So you're in this situation where if you're going to be trading in the most liquid part of the market, it's probably going to be very difficult for you to have a portfolio that even looks like the high yield index another thing we look at from a dispersion standpoint and dispersion, you know, meaning how much of the index looks alike versus how much doesn't. If you look at the percentage of the high yield bond market that is trading within plus or minus 100 basis points of the index yield. So if the index yield today is, you know, call it 7.6% here in late July, then something that's 6.6%.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, you do make a great point. I think active management does really suit the credit markets where, again, you can make those distinguishing bets between those companies. I think one of the biggest things that kind of drives that outperformance of active management and credit is simply the fact that everything isn't liquid. You can't just buy every single name in the high yield bond index. And so if you're a passive fund that's tracking that index, you're going to have to buy what's most liquid and what's available to you. For us, when we can look a little bit closer at that, I think right now it's very interesting in the high-yield bond market. As you said, spreads are in the low 300s today in spread. But if you look at the actual composition of one of the high yield bond indices, you'll”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“That's very interesting. So, going back to what we discussed at the beginning, high yield credit spreads are at the 86th percentile in terms of tightness. So the overall index, that is what's available to a passive investor. In the equity market, some great investors do over a long time period outperform the index.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“And buy a passive index, even on the public side, whether that's bonds or loans in the high yield or loan market, because again, you just don't know exactly where some of those troubles are going to come from and being able to have that active management piece should allow you to, again, avoid some of these challenges, which we know and often do reveal themselves down the road one, two, three years down the road. And you need to prepare for that today, especially in private credit where your opportunity to exit that deal is going to be zero to very limited.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“Look, when spreads go tighter in general, and that's not unique to the high or for the private credit market that would exist in high yield, that would exist in loans when there's too much credit or too much money chasing too few deals, you will see spreads go tighter. Those are certainly periods where you want to monitor. I mean, our chairman Howard Marks has written a lot about, you know, what happens when you get those situations where when money is easy, that tends to be where companies that probably have less credit worthiness can access that capital. I would say the answer to that question is that's where you really do need to focus on active management and you really do need to have a manager that's doing that security by security selection. I think it's very difficult right now to want to run out.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“In a financial crisis, companies need financing. There's a lot of demand for financing and the supply shrinks back. No one wants to lend. It sounds like you implied that right now it kind of is the opposite or over the past two years, it's been the opposite, where there's been a lot of private credit money raised and that surplus of cash might even exceed the amount of private credit deals that could be done. So it's kind of the opposite of a credit crisis or it's an issue of the other way where there's too much money chasing too few deals.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“We're definitely at a period where I think private credit has been a valuable tool to get financing to companies that otherwise would have had difficulty financing. I think private credit has provided good excess return and been able to offer that more broadly to more underlying investors. I think one of the challenges in private credit is that you don't always line up supply and demand. you know there there can be times when there's a you know bigger demand for private credit than there is a supply and you'll see spreads tight on existing deals as people need to put money to work i think one thing that we we know is that ultimately over the next few years i think private credit will continue to grow it will be needed to you know satisfy you know the the capital that private equity has raised again it's that timing and that supply”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“To some degree, whether that company used existing cash on the balance sheet or used that financing, it's hard to distinguish that difference. Cash is cash, but it's certainly something that you'll want to be aware of is where that capital is going, what's happening to the free cash flow, and ultimately the leverage profile of that company. So something that is certainly needs to be monitored.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“So, I think to your first question, I mean, a sponsor deal would be again lending to a company that is sponsored by a private equity through some form of leverage buyout. So you're not necessarily lending to the private equity sponsor, you're lending to the company that they're taking private. A non-sponsor deal would be really a deal negotiated directly with a company. There may be no private equity company involved at all. That might be a life sciences company that needs financing as it's working through its current path to get certain drugs out to the market. So again, there is that differentiation there. I honestly for myself don't have great insight into exactly what percent of deals are being used for a dividend payout or something like that. I mean.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“So for me individually, I focus primarily on public markets here at Oak Tree. We have multi-strategy portfolios that do consist of both a combination of public and private investments. And I think those are a great opportunity to see what you can earn in the private markets. You can use that relative value analysis to determine, does it make sense for me to add this to my portfolio today? Again, as I said before for us in this multi-strategy framework, a lot of times you're making those trade-offs with public and private securities, that trade-off largely comes in the form of liquidity that I'm going to give up. And am I getting compensated for that liquidity? So for me and my world, I don't spend as much of my time dedicated into the private markets, but certainly see that as, again, we. Have some crossover in public portfolios.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“I mean, look, we certainly get a look at a number of deals. And so we're probably seeing a lot of that flow come through and we're making decisions all the time of whether or not we want to invest. We're passing on deals a lot. And when you know those deals come, there's always a way to, you know, see who was involved in that deal, what's happening with that deal that I may have passed on, you want to stay in that flow because there's perhaps an opportunity to come in and support that deal or even offer some form of rescue financing or new financing to a deal if they get in trouble. So yes, you certainly want to and will, an oak tree will track that market and will certainly have better insight than, again, like an investor who's only involved in the public markets, exactly what happens and what you do. I think that, you know,”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“So I think it's hard to answer that. And again, just the fact that it is private credit, unlike the high yield bond market, which is public, those defaults are known. Moody's S&P, Fitch, they all have histories of those default rates. You can see what they are. It's difficult to fully appreciate what those are in the private credit market. Could it be higher than it was historically? Maybe, but again, I think there'll always be some level of opaqueness to what those numbers actually are even going forward today.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I think you're right. And also, I mean, there's certainly been an evolution of how that markets worked. I mean, you had a lot of private credit historically was in mezzanine financing. Now you've seen that move up into more kind of first lien financing. You used to see first lien, second lien, maybe some form of mezzanine. Now you're getting that lumped more together in deals they call Unitronch deals. deals that in total have much more leverage than a traditional first lien deal would have had so i think there's going to be a lot of discovery or or maybe you know kind of reckoning ahead for those who didn't fully appreciate the difference between you know taking a you know four times levered and when i say leverage i'm talking about debt to eBit or debt to earnings you know company as opposed to a you know seven times”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“If we encounter a recession, the high yield bond market will do in terms of credit spreads, in terms of defaults. It obviously will depend on a whole host of factors, but the high yield bond market has been through many recessions. Do you know what typically happens to previous economic downturns to private credit companies? Is that a tough question to answer because in 2007 the private credit market, which was much smaller, in the 2003 recession, sorry, 2001 recession, it barely existed. And then the COVID recession lasted for two months.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“When it's attractive, that's really the best way to kind of build these portfolios that are really designed to get through multiple market cycles.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“A private credit, you have non sponsor lending where you don't have a private equity sponsor involved, but you have a company that is non-public, is not going to the public market to issue a broad deal in the high-yield bond market or the loan market. They need a partner. Their business might be a little bit more complex than others. So somebody needs to pick up their pen and do some underwriting and homework. And those are areas where you can also really pick up a pretty healthy premium to what you would otherwise earn in the public markets. And so I think being able to flex around those different solutions in private credit and have the capability to be willing to do some form of rescue lending when it's attractive, do a form of sponsor-backed lending when it's attractive, focus in on non-sponsored lending.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, I think you're right. There's certainly a number of different ways you can think about that definition of direct lending. I think the most common today is in what you see in the private credit market, which would largely be sponsor-back deals. So you have a private equity firm that makes an acquisition, does a leverage buyout, uses private credit as a form of financing that buyout. And that's probably the most common today. Some of that does happen in the broadly syndicated loan market as well. But that's probably the most common form. But yes, more recently, you have seen some forms of, I'll almost call it rescue financing, where companies are in need of new capital solutions that are, again, kind of fixing some of these troubled balance sheets. I think that's another form.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“And what are you seeing in the portfolio companies that I should mention, Oak Tree is a world leader in credit around $150 billion in management, just specifically in credit? All assets are very close to $200 billion. And according to the Federal Reserve of all private debt strategies, you have over $100 billion. But again, it's how you characterize private debt. And in terms of direct lending, according to the Federal Reserve, who obviously Oak Free knows more than the Federal Reserve about Oak Tree, but somewhere in the teens of billions of direct lending. So is everything we talked about? Is that called direct lending or is that something different?”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“And I think some of those are starting to surface today. And you're hearing more about some of these private lending deals that have happened certainly kind of in the 2021 period where interest rates were near zero. deals were underwritten with the expectation that interest rates would stay low. And now, you know, again, as you've said, that has taken a bigger chunk of people's earnings. Maybe earnings haven't grown as fast as some would have expected in 2021. So you really are kind of getting hit with maybe less earnings growth, higher interest cost. And I think you are seeing a little bit more of that trouble start to come to the surface, which again are going to be looking for new solutions to help refinance, fix balance sheets, and get through this troubled period.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“Definitely that does help. And there are certain investors that have benchmarks and other related to how much volatility you have in your portfolio and those kind of non active mark-to-market strategies certainly kind of fill that void. Again, it doesn't necessarily mean”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“So something being illiquid, some clients can view that as a good thing. I never went to business school, but I imagine that at business school, they teach that liquidity is a good thing. And something that's illiquid, investors should be paid to hold that. There should be a illiquidity discount or a liquidity premium. Are you seeing kind of the opposite where there's an illiquidity premium where people say, you know, I don't want to look at my high-yield bonds or my stocks that are flip-flopping every single day based on economic data and some news, I just want to get my account statement at the end of the quarter and everything's fine.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“So it's about the Yes, I mean, definitely. I think there's a couple of things that have been very attractive about private credit, the premium you can receive over similarly rated or other public credit sources definitely is one. And number two is the lack of volatility in those prices. You don't see the same market moves in reaction to a shift in interest rate expectations or potential widening in high yield credit spreads or equity selling off. And that kind of lack of volatility combined with that higher return is certainly something that I think has made private credit a very, very attractive place to go.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“Actually, Howard Marks had a memo about how often, I believe it was this year, not taking risk is the greatest risk of all. And I'm sure credit investors over time have vastly outperformed investors in three-month treasury bills. So it's about the relative risk and private credit spreads have been quite high and they've come down. So is that why I turn on Bloomberg? I'm seeing articles and TV Chiron's and headlines about the golden age of private credit. Is the performance because credit spreads were quite wide in 2022 and 2023, but they've come down somewhat. And that is a good way to get paid in credit.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“Right. And so you said something people don't want to sign up to take credit risk. And of course, that's true if you're being paid zero or close to zero for that credit risk. But if you're being paid a 20% credit spread to take a credit where there's a 4% chance that it goes bad and there's a default, that's probably a good risk to take.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“Seen a number of lenders who have been active in the private credit space increase their teams when it comes to some of those abilities to get through these distress situations.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“I think that's true. I mean, again, nobody wants to deliberately sign up for credit risk unless you are intentionally a distressed investor. But when you're looking at performing credit, I mean, that is not the outcome that you look for. But I think you're right when those situations do arise, you can probably delay the immediate default that might happen in other situations and give a company a little bit more time to get through a challenging period and work that out. Now, that's not going to work for everyone. Some businesses will be broken and will have long-term problems. But yes, I think those situations are better served or certainly shown to be more easily handled in those private credit situations. And I think not surprisingly, that's why you've”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“So, a payment in kind pick, it is when the lender gets paid in more debts. So they don't get paid in cash. And as people can guess, it's not Apple or Microsoft. They don't do the payment account. It is the more stressed companies. And payment accountants going back to the 1980s and probably before then. And the argument is private credit is the best place to have this credit risk if it is on the balance sheets of banks and there's a huge default then that could impact the broader economy and bank shareholders and bank capital because banks are leveraged. The private credit world is a lot less leveraged and it is a sophisticated institutional investors. It's high net worth individuals. It's sovereign wealth funds. It's university endowments. And they are the ones who can handle this credit risk. Is that the argument?”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“Payments in kind, and that might be a full payment in kind, or you're seeing partial payment in kind. And I think this is one area where the private credit market is probably better set up to handle these kind of situations than the broadly syndicated loan market because you're not dealing with as many participants in that lending pool. You might have to have that discussion with a handful of borrowers that really don't want to see a company default. They believe in the long-term possibility. And so you're willing to create these solutions that are good for the borrower as well as good for the lender. And again, more often than not, we've seen that growth through, again, these partial or full payment in kinds.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“Well, first of all, I do want to clarify that I did not mean to imply that private credit is refinancing all these companies with interest cover HOs less than one. I mean, private credit obviously wants to refinance good companies that are in a good place to pay back their debt. I think the more common thing is for private credit to refinance, the lower rated companies. Again, they may have interest coverage ratios of two or three times and certainly in a position to pay. But what, to your point, I mean, it's a pretty small part of the market overall. It has grown. And what you are seeing, and this happens in the loan, potentially in the loan market, and you're seeing it in the private credit market, is companies are trying to get more creative with how they pay that coupon. And you're seeing some combination of”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“And so that doesn't sound like a terribly wonderful scenario to be in if you're lending money to a company. So you're saying, so these deals are riskier, but they're being moved out of the leverage loan market and being financed by private credit funds. How does it compare what you're seeing now in terms of the percentage of companies in the leveraged loan market where they're not making enough money to pay their interest expense?”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT
“Above that seven and a half percent threshold. So again, in a market where about 70% of the loan market is owned by CLOs, if it doesn't fit a CLO, you're going to have more trouble finding that refinancing partner. And again, that's where private credit has become a great solution provider to some of those borrowers, again, to move them away from the broadly syndicated loan market and into a market that is more easily able to refinance them.”
2024-07-29 · Forward Guidance · Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive · IDENTIFIED FROM THE TRANSCRIPT