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Altice ‘Jenga Tower’ Menaces Global Credit Markets (Podcast)Altice distress is ripping through global credit markets and setting some ugly precedents for debt investors. Aidan Cheslin from Bloomberg Intelligence joins Irene Garcia Perez, Eleanor Duncan and James Crombie with Bloomberg News to discuss the ongoing drama. Billionaire owner Patrick Drahi has taken a combative approach to creditors, who are joining forces in an effort to avoid steep losses. Credit rating downgrades and asset price falls at Altice France — which has more than €24 billion ($25.6 billion) in debt — make lenders cautious and undermine the ability of other risky companies to refinance debt. The French telecom is “teetering like a Jenga tower with unsustainable leverage and negative free cash flow,” according to BI’s Cheslin.
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Corporate debt markets are poised to perform well provided monetary policy doesn’t get tighter, according to Morgan Stanley. “As a credit investor, the thing that matters most is that the next Fed policy action is not a hike,” Vishy Tirupattur, the bank’s chief fixed income strategist, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Spencer Cutter. “The bar for a hike is very high,” he adds. Morgan Stanley still expects three rate cuts from the Federal Reserve this year, starting in July. Tirupattur favors leveraged loans, CCC rated bonds and debt from companies in the energy sector. Also in this podcast, Tirupattur discusses the private credit opportunity and commercial real estate risks. 
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The threat of weak companies not being able to pay their debts is rising as interest rates stay elevated. “On high yield and loans, I do think that risks are growing that you could see a reset in spreads,” Meghan Robson, head of US credit strategy at BNP Paribas, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Mike Holland. “The obvious trigger for us would be that debate of rate hikes coming back,” Robson says in the latest Credit Edge podcast. BNP favors shorting some single B and CCC rated issuers whose credit spreads have tightened alot. “If rate cuts do seem to be pushed off more and more, I think there could be a sell off there,” said Robson. In addition, BNP favors bonds rated BBB, flags high-yield debt in the media sector as an opportunity, and expresses caution on the financial sector, given the likelihood of an earnings drag if the Federal Reserve doesn’t ease. “The biggest risk we’re watching is a red wave,” says Robson, when asked about the impact of the US presidential election on credit markets. 
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Europe’s largest asset manager, Amundi, expects Additional Tier 1 bank bonds to extend gains in what it sees as a broadly positive market for corporate debt. “We’re obviously in this kind of Goldilocks scenario, I think, where the central bank put remains on the table,” Steven Fawn, head of global credit at Amundi Asset Management, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Stephane Kovatchev. “Sub-debt is one part of the market which we like,” Fawn says in the latest Credit Edge podcast, referring to subordinated bonds, including bank AT1s. In addition, the portfolio manager discusses Amundi’s macroeconomic outlook, fund flows and positioning by industry sector and ratings tier. Also in this episode, BI’s Kovatchev analyzes the impact of the Baltimore bridge collapse on the global supply chain.
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Altice’s debt woes pose a threat to the collateralized loan obligation market, says Gunther Stein, chief investment officer for US performing credit and CLOs at Sound Point Capital Management. “Altice is clearly an issue for Europe, and in particular the European CLO market,” Stein tells Bloomberg News’ Carmen Arroyo and James Crombie and Bloomberg Intelligence’s Robert Schiffman in the latest Credit Edge podcast. “It’s something we all have to be thoughtful around in terms of how we’re managing our portfolios,” he said, referring to investors’ exposure to borrowers with large capital structures. While the US leveraged finance market is bigger and more diversified than Europe, Altice is also a “relevant” borrower there, Stein adds. He expects higher-for-longer rates to boost leveraged loans and sees value in the technology and cable sectors, as well as health care companies like LifePoint. “There’s good value still in the leveraged loan space,” says Stein. In this episode, Sound Point also discusses CLO issuance, pricing and leveraged loan liquidity.
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Credit investors aren’t getting enough compensation for corporate credit risk, says Matthew Eagan, a portfolio manager and head of the full discretion team at Loomis Sayles & Co. “Judging from the spread levels, I think they’ve gone a bit too far,” Eagan tells Bloomberg News’ Lisa Lee and James Crombie and Bloomberg Intelligence’s Stephen Flynn in the latest Credit Edge podcast. He sees investment grade debt as an opportunity, given decent corporate earnings and the fact that debt costs are mostly locked in. Loomis likes BBB rated debt, as well as bonds issued by banks and media companies. Eagan also says ongoing concern about commercial real estate risk is not likely to hurt major banks, and should remain contained to smaller institutions. Also in this episode, BI’s Flynn analyzes improving credit prospects at Paramount Global and predicts a US election boost for iHeartMedia. 
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