20 Sep 2021

Investcorp, a leading global provider and manager of alternative investment products, today released its quarterly “House View” on the state of global credit markets. The report reviews the key trends driving performance and market dynamics in US and European credit and provides the firm’s expectations through year-end 2021. The firm is bullish on global credit market performance in the second half of 2021, in light of continued global economic recovery, favorable credit fundamentals and strong loan demand.

“Amid strong global growth in recent months and a supportive economic backdrop, we continue to remain optimistic about the future of global credit market performance through the end of the year,” said Jeremy Ghose, Global Head of Investcorp Credit Management. “While the COVID-19 Delta variant has emerged as a potential deterrent to growth expectations, credit fundamentals are nonetheless solid and improving and CLO issuance has reached record levels to meet high demand for floating rate loan assets. We expect the favorable trends we saw in H1 to stay through year-end.”

Key insights highlighted in the report, include:

• Investcorp expects the global environment for credit to remain favorable throughout H2 2021. The global economy is continuing its post-pandemic recovery, central banks remain accommodative, capital markets are accessible to borrowers and credit fundamentals are improving.
• Demand for loans remains robust, with CLO issuance ending at a record $79 billion in H1 and projected to reach $140 billion for the full year. Investors concerned about rates continue to favor the floating rate nature of loans.
• Investcorp expects US leveraged credit, and loans in particular, to continue to perform well against a backdrop of strong US economic growth into 2022 and central bank policy likely to begin raising rates in the first half of 2023, if not sooner.
• While the Delta variant may delay some of the full potential of a post-COVID reopening, Investcorp doesn’t believe it derails the recovery. The firm is more cautious on sectors and individual credits with “reversion risk” and has reduced exposure in areas with a potentially unsustainable COVID-led demand bump.
• Looking back on H1 2021, the most striking evidence of the recovery in European credit markets is the sheer volume of new issuance and its ability to absorb this level of issuance. Total issuance across loans and high yield of €151.5 billion in H1 2021 was €11 billion or 8% above the previous record year in 2007.
• European credit markets seem set for a positive second half driven by ultra-low default levels and increasing credit spreads as the supply/demand imbalance seen over H1 2021 corrects.

Philip Yeates, Head of European Credit Funds at Investcorp commented, “The European credit market has continued to demonstrate its resilience in Q3 this year, with record levels of new issuance, a rebalanced supply/demand dynamic and almost non-existent defaults. While the leveraged loan market is showing the first signs of indigestion from the high volume of primary issuance year-to-date, issuance levels have supported the market’s overall growth and liquidity. We expect that this growing market creates more opportunity to diversify risk and rotate our portfolios in order to increase yields.”

David Moffitt, Co-Head of US Credit Management at Investcorp added, “The US credit market has benefited from similar tailwinds to its European counterpart this year, including strong demand for leveraged credit, improving credit fundamentals, low defaults and record loan issuance. We continue to drive value and outperformance in our strategies through a front-footed active trading and portfolio management approach focused on protecting principal while also finding opportunities for capturing total return and convexity.”

Investcorp Credit Management is a leading global credit manager with over $14 billion in assets under management, a more than 16-year history of investing across global credit markets and is comprised of 40 seasoned investment professionals with its senior team averaging more than 20 years of industry experience¹.

¹ All views and opinions contained herein are current as of the date of this document but subject to change. Investcorp has no obligation to update the information contained in this document.