By Joy Wiltermuth
The company's co-CEOs say they see the biggest opportunity in credit since the global financial crisis.
Troubled debt giant Oaktree Capital sees big opportunities in credit developing in the coming years as it overcomes a wall of debt.
Oaktree's incoming co-CEOs, Armen Panossian, head of productive credit, and Bob O'Leary, portfolio manager of global opportunities, see a roughly $13 trillion market that will be ripe for the picking.
Within that realm are high-yield bonds, BBB-rated bonds, leveraged loans and private credit, four areas of the market that have only grown rapidly from their nearly $3 trillion size just before the financial crisis. 2007-2008 World Cup.
"Clearly, the most serious area of โโrisk at this time is the commercial real estate sector," the co-CEOs said in a note to clients Wednesday. "That's because the wall of maturity is already upon us and it's not going to let up for several years."
More than $1 trillion in commercial real estate loans will come due in 2024 and 2025, according to the Mortgage Bankers Association.
A pullback in the benchmark 10-year Treasury yield BX:TMUBMUSD10Y, to around 4.1% on Wednesday from a high of 5% in October, has provided some relief even though many borrowers will likely still struggle to refinance. .
Related: Commercial real estate will be the biggest threat to the financial system in 2024, US regulators say
"There is a need for capital, especially for office properties where there are vacancies, rental growth has not materialized, or the debt ratio has increased materially over the last three years. This capital may or may not be readily available, and for certain types of office properties, is not available at all," the Oaktree team said.
Against that backdrop, the company hopes to dust off its financial crisis playbook and acquire commercial real estate loan portfolios from banks, but also plans to engage in "credit risk transfer" deals that help lenders reduce exposure.
Oaktree also sees opportunities in private credit, as well as high-yield and leveraged loans, where "several hundred" of the estimated 1,500 companies that have issued this type of debt are likely "doing fine" even if defaults increase, they said. .
Another area to watch will be the roughly $26 trillion Treasury bond market, where Oaktree has some concerns "about where the 10-year Treasury yield goes from here," given not only the US budget deficit. United States and the avalanche of supply facing investors, but also how to turn to foreign buyers, who were once "the largest owners in previous years."
Related: Here are two reasons why the 10-year Treasury yield is back above 4%
US stocks SPX DJIA COMP fell on Wednesday after strong December retail sales data pointed to a resilient US economy, even though the Federal Reserve has kept its policy rate at a 22-year high since July.
-Joy Wiltermuth
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01-17-24 1734ET
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