Private Credit Faces ‘Pipeline of Defaults,’ Holly Kim Says

Summary

Holly Kim, co-founder of Glendon Capital, discusses the private credit and high yield markets. She argues that a pipeline of defaults from the 2021-2022 LBO bubble will lead to a default cycle regardless of economic conditions. Despite tight spreads, she highlights structural risks and a looming maturity wall.

• High yield spreads are at historic tights due to quality improvement from private credit.
• A $2 trillion LBO bubble in 2021-2022 created a pipeline of defaults.
• $165 billion of LME paper with 66 issuers is considered the worst paper.
• Super senior paper is trading at stress levels with average prices in the 70s.
• An additional $500 billion of maturities are due in the next two years.
• Forced selling opportunities may arise, but are not yet present.
• The default cycle is expected regardless of recession or inflation.