Explosive growth of US private debt market brings parallels to ‘wild west’

Explosive growth of US private debt market brings parallels to ‘wild west’

There is no clear definition for so-called private debt, which is often also called direct lending or mid-market lending. It broadly consists of bespoke loans made by specialised lenders such as fund managers, insurers and tax-advantaged vehicles known as “business development companies.”

Borrowers can range from sizeable international groups to small companies seeking money for a new store — or just a shot of cash to keep trading for another quarter. Unlike leveraged loans, private debt is typically not widely traded, and unlike bonds, the market is largely unregulated and opaque.

The US market has swelled from about $300bn in 2010 to about $700bn by the end of last year, according to Bank of America, as pension funds, insurers and even sovereign wealth funds have sprayed money at the asset class. Last year fundraising topped $100bn for the fourth consecutive year, according to Preqin.


Demand has two main drivers: the falling returns on offer from more mainstream parts of the debt market, and the desire to diversify into new asset classes that are — in theory, at least — less correlated to the undulations of stocks and bonds. Institutional investors in private debt are in practice trading liquidity — the ability to move in and out of positions — for the prospect of juicier returns.

Private debt investors admit that the flood of money has dramatically eroded both standards and returns. KKR estimates that the average private debt yield has now fallen to about 6-8 per cent, down from the low teens a few years ago. That is only slightly higher than in the mainstream junk bond market, which is actively traded and far more transparent.

Even inside the industry there are concerns. Some say falling rates have spurred investors to borrow some of the money they deposit with private debt funds, in an attempt the juice the returns. One private debt fund executive, speaking on condition of anonymity, even sees similarities with the pre-crisis subprime mortgage market.

While private debt does not typically have the low “teaser” rates and brutal re-setting that proved so damaging, many borrowers might never be able to repay lenders at the end of a loan. That means the market is dependent on a constant influx of fresh money to allow borrowers to refinance, he says.

“There are a lot of parallels with the subprime crisis,” he concedes. “As long as [companies] can keep refinancing things are fine. But if there are redemptions then it means some people won’t get a seat on the musical chair. Someone will be crying.”

Sauce: Financial time premium content article.

Next 2008 crash this year?

Some other articles:

thinkadvisor.com/2018/08/20/in-leveraged-loans-its-beginning-to-look-a-lot-lik/?slreturn=20190104020145

businessinsider.com/us-corporate-debt-similar-to-subprime-mortgage-crisis-moodys-msnt-2018-8

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OH FUG

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Any Weimar steps we're missing before Hitler's Spirit rises from the grave like he promised and we're delivered from this degenerate hell?

Seatbelts. I want to buckle in but I can't find the goddamn seatbelts.

Did you know…
defaulting on student loans stops the interest accumulation and annual interest capitalization

Trump could have really thrown a wrench in the gears if he had most of the GOP voters pull their money out of the banks in a organized bank run, as well as push for a organized mass student debt default.

It's funny. The intelligence agencies for years got away with bulk warrant rubber stamping.

No, its just capitalist wealth, not a bubble.

Silver double bottomed (bullish) and the Gold to Silver ratio is near all time highs (should reverse, bullish for Silver). IMO this is the seatbelt

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Fret not. Niggers are gonna invent the thing.

Good. Max that fucker out.

In addition, writes Zandi, the most aggressive lending in the leveraged loan market is by private lenders outside the banking system and regulatory oversight, much like the most egregious subprime lenders before the financial crisis; and demand is so strong for these loans that lenders are easing their underwriting standards, much like they did just before the financial crisis blew up.

A net 15% of respondents to the Federal Reserve’s survey of senior loan officers at commercial banks say they have lowered their standards on commercial and industrial loans to large and medium-size customers this quarter. The last time loan officers eased standards as aggressively was in the mid-2000s, before the financial crisis. Covenants on leveraged loans and junk bond issues have deteriorated.

And financial markets now — like then — seem unconcerned about the accelerating growth in adjustable rate leverage. “Global investors appear sanguine,” writes Zandi, citing narrow spreads in the CLO and junk bond markets, but “regulators are undoubtedly nervous.”

In the meantime, growth remains strong and U.S. GDP is on track to reach 3% this year, unemployment continues to fall and is poised to decline into the “low threes” from 3.9% in July, and wage growth is accelerating, putting price pressures on businesses.

At the same time, stock, bond and real estate markets are almost certainly overvalued with high multiples, think credit spreads and low vacancy rates, setting the Federal Reserve up to raise rates more to cool off the economy, writes Zandi.

thinkadvisor.com/2018/08/20/in-leveraged-loans-its-beginning-to-look-a-lot-lik/?slreturn=20190104020145

stock, bond and real estate markets are almost certainly overvalued with high multiples

Real estate wise this is especially true in Europe. People are neck deep in debt in low salary countries.

US stocks we don't even need to talk about. They're so massively overvalued it's ridiculous.

Once the feds raises interest near the magic 5% we'll see a massive shift away from the stock market.

Does this include equity?

look at the attention the New Awakening thread is getting, his spirit is alive and well

translate shop talk for a layman?

he wants you to buy silver so you'll seatbelt yourself in the next economic crash

looking at the historical performance of precious metals I don't buy it

the precious metals market is rigged by jews anyway and they can create paper gold and silver ad infinitum and buy up the real stuff cheap that way and there is nothing some doomsday tinfoiler with his stash of physical gold can do about it

do you really think jews will let a permanent state of anarchy happen? if so, how will you defend your gold and your family against massive gangs of mexicans?

either way, look at the charts

gold and silver both took more than a year to recover and the best time to buy was always about half a year after the crash

if you don't believe in anarchy doomsday forever, just keep some cash handy to make your shekels after all stocks drop 50%

that's how jews gobble up the economy bit by bit…

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thank you

Anyone who hasn't been living under a rock will know that unemployment is not at a all time low. That is a jew narrative that's being artificially preached that I'm getting real sick of hearing as of lately. The economy is still shit, the country is getting flooded with even more immigrants that want gibs and now it's even more unnecessarily competitive now. Even though I have seen more now hiring signs, it's for low paying shit tier jobs that the average american cannot realistically survive on. I've seen companies lower their wages while the demand increases, then they wonder why they can't keep anybody for poverty wages.

The borrower is slave to the (((Lender)))
It's in that book everyone fights like retardes about you know the one with a detailed plan on a perfect way to run a country the one that most successful societys have used and prospered from 'but fall away from for (((reasons)))
Live on less than you make and debt will never be a problem

According to (((economics))):

Unemployment != Labor Force Participation, which also doesn't equal Underemployment

Wanna know how fucked this system is? Labor Force Participation Rate. Barely hitting 65% of able-bodied population, which means currently the unemployment rate is barely 10% of the actual number of persons without a job.

15% are retired, loads of people studying forever and a half