NEW YORK–(BUSINESS WIRE)–Kroll Bond Rating Agency (KBRA) releases a recap of its Where Are We in the Credit Cycle? conference, a jointly sponsored event with New York University’s Stern School of Business. The conference attracted 700 registrants who gathered to hear expert opinions drawn from a variety of perspectives including investors, lenders, regulators, and academics.
Key takeaways include:
- While most believe we remain in the benign part of the credit cycle, as the strength of the consumer continues to offset growing malaise on the manufacturing/services side of the economy, margin for error is shrinking and vulnerability to exogenous shocks is rising.
- There is a genuine sense of uncertainty around how the next downturn will play out given seismic shifts in market structure, including the explosive growth in corporate credit, the size and stability of the BBB category, the impact of shadow banks, the evolution of the loan market and its effect on CLOs, and the proliferation of passive investing strategies and ETFs.
- The consensus view is that recovery rates on defaulted loans are likely to be lower as a result of covenant lite terms becoming the norm, and the size of single-B or worse bucket has ballooned.
- Liquidity has weakened materially as traditional market makers—the large global banks—have pulled back; for just that reason, most believe a downturn is unlikely to trigger a global systemic issue as was the case in the global financial crisis.
- CLOs may come under pressure to retain their stellar default performance as collateral losses are expected to rise on lower recoveries.
To read the report, click here.
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KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.
Van Hesser, Senior Managing Director