Credit Exchange

For private credit, the best dealmaking times are when there’s more volatility, says Mattis Poetter, chief investment officer of leading European private credit firm Arcmont Asset Management, on the latest edition of the ‘Credit Exchange with Lisa Lee’ podcast.

“Volatility is generally a very good thing for us in terms of dealmaking and new underwriting,” Poetter told host Lisa Lee, managing editor at Creditflux. Private credit in the past five years has really expanded market share in periods of dislocation.

Though still too early to really tell, if there’s more volatility in public markets and increased credit spreads, Poetter can see substantial capital withdrawing from the liquid market and private credit market in Europe, which are much smaller and more inefficient compared to their US counterparts. That would be very good for the large, incumbent European players.

Poetter points to 2022 and 2023, when Arcmont saw a vanishing of competitive intensity in Europe. Capital in the European middle market was very hard to come by, liquid markets were shut, US players focused on their home market, and small European lenders struggled to fundraise.

The drawback with Trump tariffs is the possibility they will damage the economy or reduce certain trade flows and negatively impact the portfolio of existing loans, Poetter says.

The markets are experiencing a bumpier road than expected on January 1st, said Daniel Pietrzak, global head of private credit at KKR, on the latest issue of the Credit Exchange podcast. Markets have shifted in the past eight weeks, or from the election in November, but the economy still remains in pretty good shape, Pietrzak told Lisa Lee, managing editor at Creditflux. KKR is starting to see a couple of places where they can step in, and perhaps get terms and conditions or pricing that didn’t exist a few weeks ago.

These types of markets, when there is volatility, are when private credit should be able to shine. It provides a good tailwind, said Pietrzak. M&A and LBO financing activity hasn’t been as busy as Pietrzak had guessed in November, when the world was coming around to the idea of the Trump presidency being arguably pro-business, pro-deal, and anti-regulatory in some way. Instead, markets have become focused on tariffs and the uncertainty with the knock-on effect of a 'wait-and-see' approach on sale processes. Still, KKR’s private credit team is probably busier than they've been throughout 2022, 2023 and 2024.

Pietrzak does worry about what the impact could be over the medium-term. Does this trigger some type of recessionary concern? Does it impact the consumer and their related spending? For Europe, though, the narrative has turned on its head. The markets are getting excited about government spending and the multiplier effect of that, and what that can mean for economic growth.

Recent volatility has opened up fresh opportunities in credit, says John Wright, global head of credit at Bain Capital, in the latest “Credit Exchange” podcast. Wright spoke with Lisa Lee, the managing editor at Creditflux, on his expectations for spread direction – wider, he believes – and compelling opportunities in both public and private debt.

“Uncertainty begets wider spreads, and wider spreads beget more yield and more opportunity,” says Wright, with volatility being good for credit markets and for investing. While difficult to gauge the short-term, Wright believes that, over long periods of time, allocating to credit and holding through market volatility outperforms being in and out of the market.

Wright is seeing opportunities in high-yield bonds and CLOs. Bain, which has $53 billion in credit assets under management, is “pretty excited” about CLO debt, as spreads are widening and expected to continue doing so. There are compelling opportunities on the CLO equity side, he believes. Bain is also getting involved with European CLO junior debt, since it has moved a little more quickly than the US equivalent.

On M&A, “the pendulum has swung back the other way” given from heightened expectations after Trump’s election, Wright notes. But he still expects to see an uptick in M&A activity relative to the last two years, and a resumption of normal M&A activity. That will lead to loan origination.

Wright says corporate default activities are at relatively elevated levels. He advises looking beyond the headline default rate that shows historically low levels. The true default rate when accounting for such things as LME (liability management exercise) transactions is higher: “we're closer to three or four percent, which is a reasonably elevated level as it relates to default activity,” he says.

We’re on the cusp of profound change in Europe, says Tristram Leach, co-head of European credit at Apollo Global Management, in the latest “Credit Exchange” podcast. Leach spoke with Lisa Lee, the managing editor at Creditflux, on how the degree of policy uncertainty at a global level has driven a fundamental re-evaluation of how Europe needs to conduct itself.

Germany, in particular, is looking to turn on the fiscal taps, and set to spend dramatically more than it has historically on defence and infrastructure, providing an enormous fiscal boost to Europe as a whole. Only a few weeks ago, the prevailing sentiment on Europe was that it was squarely in the crosshairs of a trade war, with nothing much that could be done. Now, Europe appears to be responding to what it perceives as threats, in ways that are potentially going to change the investing landscape very dramatically, according to Leach. Those changes mean a new paradigm for Europe, and a new investing environment. The economic outlook has shifted to one of higher rates, higher inflation, and potentially higher growth.

While public credit markets remain relatively tight, there is an attractive premium to be found in private credit, Leach advises. Apollo Favours private over public in both the sub-investment grade universe, and in the investment grade credit space, where investors can pick up a 150-200bp premium over their liquid counterparts.

Mark Jenkins, head of global credit at Carlyle, speaks with Creditflux's managing editor Lisa Lee in the latest edition of the Credit Exchange podcast, about the vast growth potential in asset-backed and investment-grade private credit to a roughly $23 trillion market as bank retreat from the space.

IG private credit is gaining traction with institutional investors because they are able to get a premium of 100 to 150 basis points over liquid investment-grade spreads, said Jenkins. That’s a proportionally a bigger premium than that commanded by the sub-investment grade (known as direct lending) segment because IG private credit has more complexity. Besides insurance companies, which are familiar with the asset class, pensions and sovereigns are starting to look at IG private credit from a return perspective.

Broadly, Jenkins sees three secular trends for past five years that’s caused an increase in private investment: the ramp up of geopolitical risk, which is causing more volatility, a massive onshoring of certain capabilities, and a re-orienting of supply chains. What’s changed is the uncertainly around tariffs and immigration but that too will change.

The neutral rate will be much higher than the past fourteen years, predicts Jenkins, and there'll be more competition for capital. To invest, ask where are the points where you can create value, suggest Jenkin. There are inefficiencies in certain geographies such as corporate credit in Europe where the fragmentation and volatility has made traditional financing more difficult and thus created opportunities.