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Private credit is finally seeing some positive press for a change, with some outlets reporting signs of recovery as investors buy into high-yield bonds offered by business development companies (BDC).
BACKGROUND- It’s been a high-profile struggle for the private credit industry, with fears of a crisis brewing for some time now. The Financial Stability Board warned of risk mispricing and high default levels in the USD 2 tn sector last month, while 1Q saw wealthy investors pull more than USD 10 bn from funds, prompting managers to cap withdrawals. Software firms — a key target for private credit lenders — are also in the firing line from the AI boom.
However, bonds issued by BDCs have seen a wave of interest recently, with issuance hitting nearly USD 8.4 bn since the beginning of 2Q, after just USD 3 bn was issued in March, Bloomberg reports. ARCC’s USD 800 mn sale was 3x oversubscribed, and Blackstone’s flagship BDC’s USD 850 mn offering saw USD 4.3 bn in orders.
Behind the trend: Some are banking on BDCs’ commitment to repayment, with investors seeing the bonds as less risky than previously thought, according to the business news service. The risk premium on BDC bonds over US Treasuries has snapped back to levels last seen in February, with some analysts expecting spreads to tighten further.
Plus: Attractive yields could help give a boost to the sector. Man Group’s Chief Investment Officer Kevin Marchetti told CNBC that a spike in benchmark interest rates in the US on the back of an inflation uptick could lead to more attractive yields, especially for more disciplined lenders.
The bear case hasn't gone away, though. Underlying stressors remain — some BDCs face credit rating downgrades, and a possible mismatch between redemptions and fundraising looms. Heavyweights including Blackstone and Cliffwater are still capping withdrawals amid a wave of redemption requests.
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TASI |
11,042 |
+0.3% (YTD: +5.3%) |
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MSCI Tadawul 30 |
1,471 |
-0.4% (YTD: +6.1%) |
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NomuC |
22,975 |
-0.1% (YTD: -1.4%) |
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USD : SAR (SAMA) |
USD 3.75 Sell |
USD 3.75 Buy |
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Interest rates |
4.25% repo |
3.75% reverse repo |
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EGX30 |
50,819 |
-0.9% (YTD: +21.5%) |
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ADX |
9,805 |
+2.7% (YTD: -1.9%) |
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DFM |
5,954 |
+3.8% (YTD: -1.5%) |
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S&P 500 |
7,431 |
+0.5% (YTD: +8.6%) |
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FTSE 100 |
10,472 |
+1.6% (YTD: +5.4%) |
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Euro Stoxx 50 |
6,188 |
+2.2% (YTD: +6.8%) |
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Brent crude |
USD 87.33 |
-3.4% |
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Natural gas (Nymex) |
USD 3.12 |
+1.1% |
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Gold |
USD 4,239 |
+3.0% |
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BTC |
USD 64,502 |
+1.6% (YTD: -26.4%) |
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Sukuk/bond market index |
912.25 |
+0.1% (YTD: -0.8%) |
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S&P MENA bond & sukuk |
152.01 |
+0.3% (YTD: +0.1%) |
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VIX (Fear gauge) |
17.68 |
-9.1% (YTD: +18.3%) |
THE CLOSING BELL: TADAWUL-
TheTASIrose 0.3% on Thursday on turnover of SAR 4.9 bn. The index is up 5.3% YTD.
In the green: Liva (+10.0%), Saudi Cable (+9.4%), and Kingdom Holding (+6.0%).
In the red: National Medical Care (-2.9%), Petro Rabigh (-2.9%), and Artex (-2.8%).
THE CLOSING BELL: NOMU-
The NomuC fell 0.1% on Thursday on turnover of SAR 25.2 mn. The index is down 1.4% YTD.
In the green: TMC (+11.7%), Hamad bin Saedan (+11.0%), and Mayar Holding (+9.1%).
In the red: Bena Steel (-12.2%), Arabica Star (-10.3%), and Ghida AlSultan (-7.5%).
