Summary of Key Points from the Conference Call Industry Overview - The conference call discusses the global credit market outlook for 2026, focusing on the US and EU credit markets, private credit, and the impact of AI on debt financing [2][3][4][6][39]. Core Insights and Arguments 1. **Credit Spread Projections**: - US investment grade (IG) and high yield (HY) spreads are expected to widen to 100 basis points (bp) and 350bp respectively by Q1 2026, before narrowing to 85bp and 300bp by year-end 2026 [5][42]. - EU IG and HY spreads are projected at 80bp and 275bp by the end of 2026, with expectations of outperformance during widening phases [5][8]. 2. **Default Rate Expectations**: - Default rates are anticipated to rise, particularly in private credit, which is in a more advanced stage of the credit cycle. A rise of 200-300bp in private credit defaults is forecasted, while US leveraged loans and high yield are expected to increase by 50-100bp through mid-2026 [5][22][68]. 3. **Economic Conditions**: - The US faces late-cycle stress with a 36% probability of recession by late 2026, driven by weakening corporate profits, higher interest costs, and rising non-performing loans [5][39][60]. - Labor market softness is expected to persist into 2026, with declining consumer sentiment and durable goods sales [5][39]. 4. **Sector Concentration Risks**: - Private credit markets show high sector concentration, particularly in services, technology, and healthcare, increasing vulnerability to sector-specific shocks [5][40][87]. 5. **Global Credit Issuance**: - An increase in global credit issuance is expected in 2026, led by US IG and HY markets, driven by hyperscaler capital expenditures and increased M&A activity [5][26][41]. 6. **AI Impact on Credit Markets**: - The emergence of AI is seen as a double-edged sword, with potential for both disruption and growth. A bust in AI could negatively impact 20-30% of newer firms in private credit, while a boom could drive productivity gains [5][40][43]. 7. **Investment Strategies**: - Recommended trades include long positions in EU IG vs. US IG, long US equities vs. credit, and long put spreads on dividend futures [5][16][42]. Additional Important Insights 1. **Credit Fundamentals**: - US corporate balance sheet health is deteriorating, with IG scores below median levels, while European metrics appear healthier [5][28][65]. - The private credit sector's exposure to AI presents systemic risks, particularly among US mega-cap banks and private equity-owned firms [5][40]. 2. **Market Sentiment and Technicals**: - Weaker US credit technicals are anticipated in H1 2026 due to increased issuance and reduced overseas demand, although demand may improve later in the year [5][41]. 3. **Consumer Credit Cycle**: - The consumer credit cycle is showing signs of deterioration, with weaker sentiment reflected in housing and auto sales data [5][70]. 4. **Historical Context**: - Current exposure to public and private credit markets is significantly higher than during previous crises, indicating increased systemic importance [5][75]. 5. **Risks and Scenarios**: - Downside risks include an AI bust and a bond market shock, while upside risks are associated with an AI boom driving productivity gains [5][43]. This summary encapsulates the critical insights and projections discussed in the conference call, providing a comprehensive overview of the current state and future outlook of the credit markets.

Apollo's Origination Platform Strategy - Apollo's origination platforms power Athene and grow Apollo, focusing on investment-grade assets with excess spread and a track record of low losses[21] - Apollo has invested billions of dollars over 10+ years to build a large origination ecosystem[21, 70] - Apollo's asset-backed finance franchise has experienced low losses over a long period, especially for investment-grade tranches and post-crisis for all tranches[44, 45] - Apollo's ABF business has over \$200 billion in asset-backed originations to date[50, 55] Private Credit Market - The private credit market is large, with an addressable market of approximately \$40 trillion, and Apollo is focused on areas with attractive risk/reward[41, 42, 43] - The majority of private credit across Apollo is investment grade, with the origination ecosystem primarily focused on asset-backed finance[43] MidCap Financial - MidCap Financial has over \$14 billion in assets originated LTM 3Q'23 and cumulative credit losses of 27 bps since 2008[125] - MidCap Financial manages \$48.4 billion in total managed commitments as of 3Q 2023[125, 137] - MidCap generates a ~17% return on equity[152, 153] Wheels - Wheels has approximately \$4 billion in assets originated LTM 3Q'23 and average charge-offs of less than 1bp over the last 15 years[165, 209] - Wheels manages a vehicle fleet of approximately 800,000 vehicles as of 3Q'23[165] ATLAS SP Partners - ATLAS SP Partners had approximately \$40 billion in funded AUM at launch in February 2023 and has originated approximately \$10 billion in assets since acquisition[216] - ATLAS SP Partners has less than 1bp in aggregate impairments on originations over the last 7 years[216, 247] Earnings Power - Apollo has approximately \$95 billion of directly originated assets within Athene's investment portfolio[281] - Apollo's capital solutions fees were approximately \$420 million YTD 3Q'23[299]

Core Viewpoint - Concerns regarding the U.S. credit market, particularly the private credit market, have intensified this year, with recent financial reports from Business Development Companies (BDCs) providing insights into the market's health amidst these worries [1][11]. Group 1: BDC Financial Performance - BDCs have reported stable overall performance, but specific pressures are evident. For instance, Blue Owl Capital's net investment income for Q3 was $190.1 million, below analyst expectations, while Ares Capital reported $338 million, also missing forecasts [1][11]. - The dividend payouts of these BDCs remain stable despite the pressures, indicating a cautious approach to maintaining investor confidence [1]. Group 2: Asset Quality Indicators - The non-accrual investment ratios, a key indicator of credit quality, show a mixed picture. Main Street Capital and FS KKR Capital reported non-accrual ratios of 1.2% and 2.9%, respectively, both lower than the previous quarter. In contrast, Blue Owl Capital's ratio nearly doubled from 0.7% to 1.3% [2]. - A lower and stable non-accrual ratio typically indicates good borrower health, while an increasing ratio signals potential asset quality deterioration [2]. Group 3: Challenges and Risks - BDCs are facing challenges, particularly with consumer-facing loans. Blue Owl and FS KKR have identified several loans as non-performing, with Blue Owl's non-performing assets rising to 1.3% of its portfolio [3]. - Ares Capital maintains a low level of non-performing loans and shows strong loan issuance, reflecting robust risk management. In contrast, FS KKR has reported increased impairment provisions, raising concerns about its asset concentration [3]. Group 4: Market Sentiment and Future Outlook - BDC stock prices have been under pressure, significantly lagging behind the broader U.S. market. Analysts suggest that the high proportion of floating-rate loans held by BDCs may lead to reduced interest income amid expectations of interest rate cuts [4]. - Fitch Ratings has indicated that BDCs may face greater pressure in the coming year due to narrowing spreads and an anticipated increase in payment-in-kind (PIK) arrangements, which could further strain asset quality [4][5]. Group 5: PIK Arrangements and Market Concerns - The use of PIK arrangements, which allow borrowers to defer interest payments, is raising concerns about the underlying credit quality of private credit funds. Nearly half of surveyed market participants expect PIK volumes to rise by 2026 [5][6]. - The distinction between "good" and "bad" PIK is crucial, as the latter could lead to increased non-performing assets and losses [5]. Group 6: Broader Economic Implications - The Federal Reserve has expressed concerns about the interconnectedness of leveraged companies and the potential for unexpected losses in the private credit market to affect the broader financial system [7][8]. - The private credit market, valued at $1.7 trillion, is facing scrutiny for its speculative lending practices, reminiscent of the pre-2006 subprime mortgage crisis [8][10]. Group 7: Conclusion - The Q3 BDC financial reports reflect a credit market under pressure from rising interest rates and economic slowdown, with structural vulnerabilities becoming apparent. The health of small businesses and the evolving asset quality of BDCs are critical areas for investor attention [11].

Mike, is this information like, you know, could have been useful six weeks ago to we get any do do we glean anything from something like this. No, not really. It's been described by one analyst as a sort of Rorschach test.You see in it what you want to see. You know, maybe some people see clouds or something like that. But those who think that the Fed should be on hold point to the strong job creation and the fact that inflation is still going up. And those who think the Fed should be cutting can point to t ...

Core Viewpoint - Private credit lenders are set to take control of 48Forty Solutions through a proposed restructuring, following a significant debt provision to support its acquisition by Summit Partners [1][2]. Group 1: Restructuring Details - A group of lenders, including Antares Capital, KKR & Co., BlackRock Inc., and Carlyle Group Inc., will exchange approximately $1 billion of liabilities for equity in 48Forty as part of the restructuring [2][3]. - Lenders will inject around $75 million of new debt into 48Forty during the restructuring process [3]. - The restructuring proposal includes potential cost-cutting measures, which may involve closing multiple pallet recycling plants, although no final decisions have been made [6]. Group 2: Financial Performance - 48Forty has stopped paying interest on its debt as of August, indicating financial distress [5]. - FS KKR Capital Corp. marked down the value of its loan to 48Forty to about 46 cents on the dollar in Q3, down from around 86 cents a year ago, reflecting a significant decline in the company's financial health [5]. Group 3: Governance Changes - The restructuring will involve appointing a new board for 48Forty, with Antares and KKR each having two appointments, while Carlyle and BlackRock will jointly agree on one, and the last seat will be reserved for the CEO [7].

Core Viewpoint - Billionaire investor Jeffrey Gundlach warns that the private credit market in America is showing signs of distress, likening it to the unregulated CDO market before the 2008 financial crisis, describing it as "the Wild West" of finance [1][3]. Private Credit Market Overview - Private credit involves direct loans to companies from investors or funds, bypassing traditional banks, and has evolved into a multitrillion-dollar market [4]. - These funds aggregate capital from pension funds, insurance companies, and wealthy investors, offering loans that typically yield higher interest rates than conventional bonds or bank loans [4]. Market Conditions and Trends - Gundlach indicates that the private credit market is experiencing a shift from theoretical concerns to real challenges, with some firms likely to survive while others may face difficulties [2]. - The recent decision by Blue Owl Capital Corporation to abandon plans to merge its private credit funds reflects current market volatility, impacting stock prices of related entities [3]. Risks and Concerns - The private credit market is characterized by a lack of public market pricing, reduced regulation, and limited transparency and liquidity, which can pose risks during adverse market conditions [6]. - Gundlach highlights a specific case where a reputable firm marked bonds at 100 cents on the dollar, only to revise the valuation to zero a month later, illustrating the potential for drastic valuation changes [7]. - The illiquidity in private credit could exacerbate financial distress, similar to the liquidity squeeze seen during the 2008 crisis, where investors struggled to meet capital calls [8]. Market Dynamics - Gundlach emphasizes that in a fearful market, investors tend to shy away from illiquid assets, leading to a mismatch between large asset pools and liquidity needs during stressful times [9].

Core Insights - Blue Owl Capital Corporation (OBDC) has withdrawn from its planned merger with Blue Owl Capital Corporation II (OBDC II) due to unfavorable market conditions, which made the transaction less attractive [1][8] - The merger aimed to integrate a nontraded fund into OBDC, but a significant selloff in private credit stocks led to concerns about investor disadvantages [2] - Despite canceling the merger, both companies believe that a merger could provide long-term strategic value under better conditions and plan to explore future options [2][8] Company Performance - OBDC II, launched in 2017, has achieved a cumulative net return of nearly 80% and an annualized net return of 9.3% since inception, with a fair value of $1.7 billion across 190 companies as of September 30, 2025 [3] - OBDC's share repurchase program of $200 million remains active, supporting its stock price [4][8] - As of September 30, 2025, OBDC held investments in 238 portfolio companies with a combined fair value of $17.1 billion [4] Financial Results - OBDC reported an adjusted EPS of 36 cents for Q3 2025, missing the Zacks Consensus Estimate by 7.7% and reflecting a 23.4% year-over-year decline due to elevated expenses and lower income from prepayments and debt investments [4] - The Zacks Consensus Estimate for OBDC's earnings indicates declines of 19% and 7.8% for 2025 and 2026, respectively [11] Market Comparison - OBDC's shares have decreased by 20.8% year-to-date, compared to a 9.5% decline in the industry [7] - OBDC trades at a forward price-to-earnings ratio of 8.23X, significantly lower than the industry average, and carries a Value Score of C [10]

Core Viewpoint - The article shifts focus from commercial real estate to another high-yield segment, indicating a broader exploration of investment opportunities beyond traditional real estate markets [1]. Group 1 - The publication typically focuses on real estate, analyzing various aspects including positive and negative trends within the sector [1].

Core Viewpoint - The innovative economy is currently a focal point for markets, with expectations of potential market corrections in the next year or two due to historical patterns following technological accelerations [2][4]. Group 1: Market Dynamics - There is ongoing volatility in the markets, and while some froth may have been removed, remnants could still exist [3][4]. - The pace of technology adoption is anticipated to be slower than the market currently expects, leading to fluctuations in investment returns over the coming years [6][7]. - Concerns exist regarding the ability of companies to meet debt obligations tied to new technologies, particularly if the pace of adoption does not align with expectations [8][9]. Group 2: Private Credit and Financing - Private credit is a significant area of financing for data center buildouts, with recent scrutiny over the valuations and performance of private credit managers [18][19]. - Goldman Sachs operates across the spectrum of private credit, lending to below-investment-grade companies that generally perform well in a strong economy [22][24]. - The credit risks associated with financing data centers differ from those of other private credit ventures, as data centers are often backed by large, stable companies like Google and Amazon [24][25]. Group 3: Long-term Economic Outlook - The long-term economic benefits from AI and technology deployment are expected to be substantial, contributing to productivity gains and overall economic growth [12][13][16]. - While short-term volatility is acknowledged, the overarching trend towards technological advancement is viewed as a secular trend that will not reverse [12][14]. - The importance of disciplined risk management and underwriting processes in credit markets is emphasized, particularly in the context of potential economic downturns [26][27].

Private credit is booming, but it's not without risk. Ares Management's Raj Dhanda says this is the moment when experience matters most. From underwriting discipline to navigating rate cuts and illiquidity risk he joined Bloomberg Open Interest to break down how Ares is positioning for the next phase of the credit cycle, and why he thinks private markets still have plenty of upside. ...