Conference Presentation, Panel
Credit Markets: What's Next?
Milken InstituteMaria Boyazny, Richard Cantor, Joshua Friedman, Tony Ressler, Steven Tananbaum, David Warren, Michael Milken, Steve Tannenbaum, Maria Boiasni, Mike Milken
- Steve Tannenbaum forecasts that credit risk compensation and implied default rates of 3% will appear aggressive compared to realized rates of 5% to 6% expected in a couple of years, while anticipating debt-to-EBITDA and acquisition financing to rise in 2013.
- Tony Ressler projects that non-traditional finance institutions, including BDCs and CLOs, will grow significantly over the next several years if they establish disciplined branding, with large banks continuing to deleverage over a three- to five-year period and traditional fixed income portfolios targeting 2% to 3% returns.
- David Warren notes that default risks for 2015 and 2016 have decreased, though he expects 5% default rates to emerge in 18 to 24 months, predicts 2017 may present challenges, and believes mortgage-backed securities priced at 45 to 50 cents could appreciate to 70 to 80 cents if home prices improve.
- Maria Boiasni observes that lending to smaller companies has contracted nearly 20% since the pre-crisis period and warns that reduced proprietary desk activity, now approximately 20% of historical volumes, has diminished credit support, advocating for tactical opportunistic portfolios and a three- to five-year horizon for illiquid assets.
- Richard Kantor expresses confidence in U.S. non-financial corporate default expectations, citing that interest coverage has doubled since 1988 and leverage is down to 70% of earlier levels, while asserting that significant default rate increases require a major unemployment spike that is unlikely without a macro shock.
- Maria Boiasni predicts that Fed rate hikes will inevitably catch unprepared participants in distressed credit, creating entry opportunities, while Richard Kantor anticipates central banks will attempt to smooth the path to higher rates and that Europe may face numerous mini-crises that are expected not to expand into major crises.
- David Warren indicates that prices reached lows in 2011 allowing investment without reliance on home price increases, expects 20% returns to continue as home prices turn, and maintains a portfolio duration of approximately 1.7 years to avoid duration bets.
- Steve Tannenbaum suggests that equity predictions depend on a view of global improvement and notes a consensus belief that Treasury yields will rise despite interim market noise, while Richard Kantor warns that even minor increases in long-term rates could trigger worldwide valuation impacts across various sectors.