Junk Bond Guru Sees Rising Distress Ahead as Banks Tighten Lending

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(Bloomberg)-The powerful American economy left the troubled debt investors of starvation, but it may be about to change, according to veteran return analyst Marti Friedson.

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The latest Federal Reserve for Adult Loan Reserves showed that banks raised standards by more than three years when they lend them to medium -sized and larger companies. This will put pressure on borrowers already with high financing costs and global fluctuations from the escalation of commercial wars.

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“On the margin, tightening credit standards exposes more companies to a serious risk of failure to pay,” said Friedson, a former Merrill Lynch, who was studied by his debts by Wall Street for decades.

Risks reserved to re -financing at higher interest rates, as cheap debt facilities begin in the Kofid era. Although the federal reserve began to reduce prices in September, borrowing standards such as the treasury return have increased for 10 years since then, which leaves unwanted classification companies more vulnerable The most economical.

There is about 0.7 connection between the criteria of lending and the level of distress in the credit market Historical by 12.7 %, a decrease in its last peak of 10.4 % in March 2023.

“You will not see the relative rate immediately, but it will rise,” said Friedson. The CEO of Fridson Vision High Rivel strategy said:

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Of course, the latest scanning data in the Federal Reserve may be just an edge-lending standards have decreased since September 2023 and can decrease again if banks see trade war fluctuations and trust that the United States is on a long-term long-term growth path. Other rear winds include a wide global demand for the return from American exporters and private markets, where there is a lot of dry energy that provides a lifeline for some borrowers who are struggling.

Funding costs

But the biggest move in lending standards since the fourth quarter of 2022 adds pressure on the weakest companies with nearby debt entitlements. For some, the costs of re -financing are not sustainable, just as the new trade and immigration policy threatens to pressure input costs and thus profits, which makes debt markets less predictable.

Listen to Lotivie Caroy, the largest credit strategy in Goldman Sachs, discuss hedge strategies

Meanwhile, the bond differences for companies remain close to the tightness of the financial crisis they struck last year. The narrow gap between the risk installments on different credit quality notes highlights the fact that there is a much greater demand for the debts with a high return than the net of the new width.

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“The distress that remains low for a long time is the” Tinderbox box awaiting the explosion, “said Phil Brendel, the chief credit analyst in Bloomberg Incins, in Podcast recently.

He said: “The geopolitical situation is very volatile and I think it is at some point we will see a kind of events that will cause more chaos than we expect.” “I think we have really finished.”

Week in the review

• Morgan Stanley and six other banks sold $ 4.74 billion from X Holdings Corp. , Which allowed lenders to finally rid themselves of being subjected to financing they arranged to buy Elus Musk for the year 2022 from the social media platform.
• Loans are sold to X Holdings Corp. The banks were on their books with great discounts just a few months ago at the nominal value now, which indicates the existence of increasing concern for investors: demand for the supported loans is very strong so that the prices rise.
• JPMorgan Chase & Co. To investors to re -financing the Machine Machine United Gaming LLC operator.
• The banks including Citigroup, Goldman Sachs and Morgan Stanley have extended a commitment to Clayton Dubilier & Rice last year to finance the purchase of part of the ARM consumer in Sanofi, Opella. They are waiting for the sale of debts to investors until late March or April, after Obila released its results in the fourth quarter, and facing the risk of market changes and total economic surprises that affect their profits.
• Jpmorgan Chase & Co. It is among the three of the lenders who are preparing to sell a loan of 1.05 billion euros ($ 1.1 billion) for the Colosseum of Dentistry, and it is the latest company that is funded by private credit and to the most liquid debt market.
• Citigroup Inc. Part of the financing that supports the acquisition of the LakeView Farms for the Noosa Farms Investors, after it struggled to raise the demand for debts between a broader group of loan investors.
• Social media company said in a statement on Monday that Snap Inc. You plan to provide 700 million dollars of unwanted bonds for the re -convertible debt.
• Rogers Communications Inc. 2.8 billion dollars in the United States and Canada by selling secondary notes that mature in 30 years.
• Julius Baer Group Ltd. To sell its first additional 1 -level bonds with the condition of transferring shares, as it joined the switch in the Swiss market from the structure of attracting investors when $ 17 billion from Credit Suisse went to zero.

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In this step

• Jimmy Caruso, the administrative director of Apollo Global Management Inc. leaves. , The company to start its own creation platform. Caroso, based in New York, is scheduled to leave at the end of February. Participate in the company's credit and mixed value of companies, including Mro Holdings Inc. And Capital Vacations.
• Brockefield rented the assets Ltd. Rachel Russell of Morgan Stanley, as it helped lead in the commitment to the bank's guaranteed loans.
• Deutsche Bank Ag Jackson Merchant, head of the capital market market at Mizuho Financial Group Inc. The New York -based merchant is scheduled to submit his headquarters to the Ryan Corning report, head of the Deutsche Bank in the Americas.
• Morgan Stanley promoted three sales executives in the framework of universal -income -in -income heads, Jay Halik and Jacob Hormar. Seifator Orlalo, head of fixed income in Europe, the Middle East and Africa, will also supervise the customer's coverage in the world, while Lindsay Coleman was appointed as head of the customer's coverage of the Americas, and Joseph Anderson was appointed as a global debt president of the platform sales.
• Blackrock Inc. Michelle Obinas is the head of emerging markets, to replace Amer Paisat, who leaves the largest asset manager in the world to become Minister of Economy in Lebanon.
• Deyue Hu leaves from Goldman Sachs Group Inc. , In charge of trading the Chinese credit flow to the American Bank, to join another company.
• Jefferies Financial Group Inc. Vivian Lee of Morgan Stanley as her president in Asia, who is in Hong Kong and is based in Asia.
• Goldman Sachs Group Inc. In recruiting BNP Paribas Sa Trader Jeff Leung to focus on Chinese credit trading.

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