Conference Presentation, Panel, Fireside Chat
Opening Plenary | Part 2: Capital Markets in a Time of Global Disruption
- High yield debt markets are viewed as offering fairer value and a better margin of safety compared to equity markets, which are perceived as fully priced with optimistic V-shaped recovery expectations; conversely, current loans are noted as significantly riskier than prior decades, with double B loans in the loan index showing a lower percentage than in the high yield index, a ratio reversed from 2008.
- Legacy RMBS securities issued before 2008 are expected to possess 35% to 40% equity value, up from the 5% to 10% held during the 2008 crisis, with prices trading around 50 cents on the dollar rather than 95 cents, suggesting a higher probability of full payoff.
- Financial markets are described as being at a "tipping point" where institutional action could influence the global direction, with Credit Suisse anticipating a shift from defensive liquidity needs to offensive strategies for restarting businesses and supply chains.
- A new structural balance between employees and firms is expected to emerge, redefining work as an activity rather than a location, supported by the re-establishment of trust between financial institutions and governments.
- The Federal Reserve and Congress are credited with staying ahead of the curve compared to the 2008-2010 period, with plans for $1 trillion in government spending to support up to $4 trillion in state and local infrastructure.
- Private companies are anticipated to be revalued through innovative IPO routes and arbitrage opportunities between public and private markets, aiming for returns of 20% or 30% instantly for clients looking to monetize holdings.
- Credit Suisse expects a period of recapitalizations and restructurings, including cross-border activity and clients taking companies private due to current valuations, alongside opportunities to cherry pick survivors in disrupted industries like retail and hospitality.
- Opportunities exist in municipal securities for tax-free rates, in "fallen angels" similar to the late 1970s, and in sectors like travel where equity markets may favor winners like Amazon while debt markets target companies at risk of disruption.
- The underlying assets in today's CLOs are considered materially riskier, lower rated, and more leveraged than in 2008, with higher degree of difficulty and less significant upside compared to legacy RMBS.
- Pension funds and insurance companies face uncertainty in meeting actuarial assumptions due to low returns on high-grade debt, creating potential financial repression where future return sources remain unclear.
- A concern exists regarding the availability of "patient capital" for long-term socioeconomic infrastructure shifts, while the firm notes that returns in private markets may be challenged, presenting a trade-off with liquidity.
- Market conditions are expected to drive companies to issue stock or exchange offers for debt to reduce leverage, creating a "virtuous circle" where fixing balance sheets removes tail risk and generates positive momentum in related sectors.
- The firm plans to extend private market networks over the next couple of decades to bridge the gap between long-term capital needs and listed market access, while addressing the difficulty of finding large-scale opportunities for large mandates.
- Disruptions in the cruise industry and travel sectors are expected to create uncertainty regarding recovery timelines and public market re-evaluations compared to private market valuations.
- Insurance companies and pension funds currently cannot meet actuarial assumptions based on returns available from high-grade or government debt, suggesting a need for tailored advice balancing client holdings and advisory portfolios.
- State and local governments could support $4 trillion worth of infrastructure spending using $1 trillion of government spending through a program where the Treasury guarantees or advances coupon payments.
- The firm intends to innovate around the traditional IPO route to help private companies revalue themselves as public companies, as the traditional process is cumbersome and market conditions may change in six months.
- The firm is working to find arbitrage opportunities between public and private markets to generate returns of 20% or 30% instantaneously for clients looking to monetize holdings.
- Even in the investment-grade market, spreads relative to Treasuries have been tighter only about 65% of the time historically, suggesting current opportunities exist near-term despite low rates.
- If a long period of financial repression continues, the source of future returns for pension funds and insurance clients remains uncertain.
- There is an opportunity to arbitrage the value difference between private companies and their potential public valuation, which could result in a substantial jump in value.
- The firm expects that the crisis will drive a re-evaluation of companies, with some potentially being valued higher in public markets than private markets, while others in the travel or leisure sectors may see higher uncertainty.
- The firm expects that equity markets will favor companies levered to winners like Amazon or Netflix, while debt markets may offer more interesting opportunities for companies at risk of disruption.
- The firm believes that the current market conditions allow for the identification of "fallen angels" and other specific credit opportunities similar to those found in the late 1970s.
- The firm expects that the private sector can recapitalize companies effectively, creating a "virtuous circle" where fixing balance sheets removes tail risk and feeds positive momentum in related sectors like hotels.
- The firm sees potential for companies to issue stock or conduct exchange offers for debt to reduce leverage, which is considered a prudent step given the current cost of debt relative to equity.
- The firm expects that investors may often be forced to sell their best assets first during liquidity crises, such as the liquidation of high-quality mortgage securities before the Federal Reserve's corporate bond purchase program.
- The firm believes that the "degree of difficulty" in certain CLO transactions is higher today, and the upside may not be as significant as in legacy RMBS or underlying loan assets.
- The firm perceives that the underlying assets in today's CLOs are materially riskier, lower rated, and have more leverage and worse covenants than they did in 2008.
- The firm expects that the current environment will create opportunities for companies to issue debt and raise liquidity, leading to tightness in the market and a subsequent rise in equity values.
- The firm anticipates that the private markets will be more challenged in terms of returns, but the arbitrage opportunity between public and private markets remains a focus for structured solutions.
- The firm expects that the current level of global liquidity puts pressure on fund managers to find large-scale opportunities, as small transactions may not be sufficient to move the needle for large mandates.
- The firm anticipates that the recovery for companies in the cruise industry is uncertain, as they are unsure when they will be able to resume sailing operations.
- The firm expects that the public markets may re-evaluate companies in sectors like travel and hospitality differently than private markets, creating valuation discrepancies.
- The firm expects that the current market dislocations will provide opportunities for clients to take advantage of "dislocations" to invest in specific areas of the market.
- The firm expects that the "new contract" between firms and employees will result in a structural shift in how work is organized and performed in the future.
- The firm expects that the current crisis will lead to a reestablishment of trust and global collaboration between financial institutions and governments, which had previously broken down.
- The firm expects that the financial sector will need to rethink its role in providing help to clients more quickly, utilizing digital tools to extend credit and support small-to-medium enterprises.
- The firm expects that the current environment will require clients to either restart businesses with new liquidity or take advantage of dislocations to invest, shifting from a defensive to an offensive stance.
- The firm expects that the "tipping point" in financial markets will determine the direction the world takes, offering the potential for an incredible difference if the right choices are made.
- The firm expects that the private market looks like an interesting place for investors, though returns there may be more challenged and not as high as historically, presenting a trade-off with liquidity.
- There is an opportunity to arbitrage the value difference between private companies and their potential public valuation, which could result in a substantial jump in value.
- The firm expects that the crisis will drive a re-evaluation of companies, with some potentially being valued higher in public markets than private markets, while others in the travel or leisure sectors may see higher uncertainty.
- The firm expects that equity markets will favor companies levered to winners like Amazon or Netflix, while debt markets may offer more interesting opportunities for companies at risk of disruption.
- The firm believes that the current market conditions allow for the identification of "fallen angels" and other specific credit opportunities similar to those found in the late 1970s.
- The firm expects that the private sector can recapitalize companies effectively, creating a "virtuous circle" where fixing balance sheets removes tail risk and feeds positive momentum.
- The firm expects that the current market conditions will drive a re-evaluation of companies, with some potentially being valued higher in public markets than private markets.
- The firm expects that the current environment will create opportunities for companies to issue stock or exchange offers for debt to reduce leverage.
- The firm expects that the current crisis will lead to a reestablishment of trust and global collaboration between financial institutions and governments.
- The firm expects that the "new contract" between firms and employees will result in a structural shift in how work is organized and performed in the future.
- The firm expects that the current crisis will create a "virtuous circle" where fixing balance sheets in one sector, such as hotels, leads to broader market improvements.
- The firm expects that the current market conditions will drive a re-evaluation of companies, with some potentially being valued higher in public markets than private markets.
- The firm expects that the current environment will create opportunities for companies to issue stock or exchange offers for debt to reduce leverage.
- The firm expects that the current crisis will lead to a reestablishment of trust and global collaboration between financial institutions and governments.
- The firm expects that the "new contract" between firms and employees will result in a structural shift in how work is organized and performed in the future.