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The Last Tranche with THL’s Herzig: loan bifurcation and the direct lending safety net

Monday, November 11, 2019

For Creditflux's Last Tranche podcast, THL Credit’s Michael Herzig joins Hugh Minch and Seth Brumby to talk about bifurcation in the US loan market with high single-B/low double-B loans pricing much tighter than they have in years, relative to low single-B and triple C names.

Herzig shares his views on how risks in the loan market today compares to the 2002 tech bubble and the 2008 financial crisis. As part of this discussion, he says that some companies have few options open to them in the syndicated loan market. "We're seeing the first few companies that are coming up to maturities, where a simple refi is not on the cards. A simple A and E [amend and extend] may be more complicated," he says. 

Herzig goes on to say this is a little bit like the challenging capital markets environment in 2008 - but nowhere near to the same extent. And that in 2002, loan issuance was weighted heavily towards telecom firms, which is very unlike the diversity in the market today. 

If some companies are finding it difficult to obtain financing in the syndicated loan market, Herzig says that private credit can provide a compelling alternative. "This was never an option before," says Herzig, referencing the fact that direct lending has blossomed since the financial crisis. The tougher syndication credits and the most popular direct lending assets are in the same price zone, he says, which means even large-cap borrowers can access private credit, based on the increasing number of $1 billion-plus unitranche deals completed. 

The podcast goes on to cover manager flexibility during stressful times and the evolving creativity of many issuers to sell deals. Plus, a more high level discussion on CLOs as standalone business models, how to value them and an explanation for why the market has seen so many debut issuers.

To listen to the podcast, please click here.

 

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TAGS: Direct lending People CLO THL Pricing Leveraged loans Performance North America podcast The Last Tranche