Trump tariffs will materially impact credit, raise financing costs – Napier Park’s Jon Dorfman

04/11/25 • 20 min

The Trump administration chose a shock-and-awe approach to begin tariff negotiations, and backpedalling from the more extreme stances is the right decision, said Jonathan Dorfman, co-founder and CIO of alternative credit manager Napier Park Global Capital, on the latest ‘Credit Exchange with Lisa Lee’ podcast. Regardless, it’s clear there will be some tariffs, and credit investors should take that very seriously, Dorfman told Lisa Lee, managing editor at Creditflux, in a podcast taped 9 April.

Companies in the non-investment grade space that are exposed to tariff risks are looking at survival or no survival. Defaults will be higher. Companies will find it harder to get financing and face higher cost of capital due to the big movement in the long end of Treasuries, combined with widening credit spreads, said Dorfman.

The violence of the market movements will create more uncertainty at the corporate C-suite, as well as among consumers, who have already been psychologically damaged. All that risks slowing down the economy pretty meaningfully, cautioned Dorfman.

Credit markets so far have softened, but not materially. That’s because of the Federal Reserve. If these market moves had happened five or ten years ago, the credit market would have completely collapsed. What’s changed is the base rate. There’s very little leverage in credit markets, which means no margin calls. No margin calls means no forced selling. Because most credit buying has been based on gross yield, unlevered buying, the system has held up pretty well, Dorfman said.

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Best time for private credit is during market volatility and dislocation – Arcmont’s Mattis Poetter

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.

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M&A rebound will come – Goldman Sachs’ Vivek Bantwal

The expected M&A rebound may take longer to materialise, but it will come, Vivek Bantwal, co-head of global private credit at Goldman Sachs, said on the Credit Exchange podcast.

Both public markets and private markets have a place, and in some areas, there’s been a blurring of the lines between the two, Bantwal told Lisa Lee, the managing editor of Creditflux.

Given Goldman’s role at the centre of that ecosystem, Bantwal thinks it’s important they are able to show their clients solutions in both markets side-by-side.

When underwriting new deals right now, look at how tariffs might impact. But what else are you looking at, Bantwal asks. What’s changed, given the new uncertainty that’s popped up in this world and in investing?

The other part of the analysis, though, may not be so much related to tariffs. If you have an economic slowdown or a recession, how is that management team planning to weather the storm? What do you know about their supply chains, what they do with their marketing or their capex plans? Staying close to your management teams and understanding their plans for how to navigate all that is a really important part of the underwriting process, Bantwal emphasises.

There’s also opportunities in hybrid – the type of capital that sits in-between debt and equity and is very flexible. Hybrids can be used in a variety of ways, Bantwal notes – especially given the challenges in the private equity community to exit in the current environment.