Private equity firms are buying up debt at steep discounts as banks try to offload billions of dollars of debt on their balance sheets. Notably, Advent International and Clayton Dubilier & Rice have purchased debt that supports at least two of their deals over the past year, while Elliott Investment Management bought a $550M chunk of bonds backing its acquisition of Citrix Systems at 79 cents on the dollar. Analysts suggest the double-digit yields of debt of acquainted companies are too good to pass up, although it is far from a sure thing. The Federal Reserve continues to raise interest rates to tame runaway inflation, while a potential recession in the coming months could weigh on corporate earnings, denting already depressed prices for risky debt.

"A lot of these private equity firms are smart buyers of debt when the time is right...Right now, we’re in a situation where private equity firms generally are flush with cash and have the ability to take advantage of situations where the debt is trading at a discount."

Steven Messina, Skadden, Arps, Slate, Meagher & Flom LLP

The "BRIC" acronym, first coined by former Goldman Sachs economist Jim O’Neill, has referred to Brazil, Russia, India, China and South Africa as a promising group of emerging markets. O’Neill predicted that these countries' income levels would eventually catch up with western levels and grab an ever-greater share of the world economy while the G7’s share would shrink. The G7, which stands for Group of Seven, is a political forum for the biggest industrialized democracies, including the US, UK, Germany, France, Italy, Japan and Canada. However, recent IMF estimates show that the BRICS’ share of global GDP surpassed that of the G7-ex-US in 2022, indicating that O’Neill’s prediction is coming true. Notably, China, the biggest BRIC economy, outperformed western GDP growth during the early stages of the pandemic. The trend of the BRICS’ growing share of the global economy is expected to continue.

According to the Labor Department yesterday, the US consumer-price index (CPI), which measures what consumers pay for goods and services, increased 5.5% in March compared to a year earlier. This marks the smallest gain since May 2021 and a slowdown from February’s 6% increase. However, inflation has remained elevated, well above the 2.1% average in the three years before the pandemic and the Fed’s 2% target. Core prices, which exclude volatile food and energy categories, increased 5.6% in March from a year earlier, slightly accelerating from the prior month. This has remained stubbornly high in part due to inflationary pressures. Despite this, many economists believe that a higher unemployment rate is needed to solve the inflation problem, while the Fed is unlikely to change its policy based on the March CPI figures. In addition, tighter lending following recent bank failures will also slow U.S. economic growth this year, according to the International Monetary Fund.

Alternative Investments Gain Steam According to Ocorian Study

https://www.assetservicingtimes.com/assetservicesnews/industryarticle.php?article_id=14222&navigationaction=industrynews&newssection=industry

Written by:

Andrew Popp | Sr. Research Associate