A Longstanding Fear About The Corporate Debt Market May Finally Be Coming True

Tracy Alloway (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:15)

And I'm Joe Weisenthal.

Tracy Alloway (0:17)

Joe, I'm struggling to think about how to start this episode because there's just so much going on in this particular space, which is the corporate credit market.

Joe Weisenthal (0:28)

Yeah, I mean, big picture.

There's a lot going on in corporate credit because there is a lot going on in the market because there is a lot going on in the world right now. I feel like if people were to just listen to our last several episodes, it would be a great trajectory of the world just getting crazier and crazier and crazier with each episode.

Tracy Alloway (0:52)

Yeah, absolutely. And the sell-off in the stock market has been bad enough, but it does feel like what a lot of people are starting to worry about now are these strains that we've seen in credit. So we've seen risk premiums on bonds really blow out, derivative indices tied to those bonds also going up as people try to get more protection. We've seen some big name companies rushing to tap credit lines and try to raise cash before that liquidity dries up. And there's just so much concern in the market. And a lot of it goes back to warnings and issues that people have been talking about for years.

Joe Weisenthal (1:35)

Right. The news that we got yesterday, and of course, because things are moving so fast, it's always worth pointing out when we're recording these episodes. We're recording this Thursday, March 12th.

The news we got yesterday about various private equity companies telling their portfolio companies that they should draw on credit lines was kind of one of the real indicators that what started off as a health crisis and then sort of became an economic and market panic is becoming something that I think is really becoming a major concern about the liquidity and credit in the system available to anyone.

Tracy Alloway (2:19)

Yeah, and there's one thing that makes the credit market very different to the stock market, and that is the level of transparency and pricing. So when markets are selling off, you can look up a stock index, you could see exactly where it's trading and you know pretty much what it's doing. But with credit, it can be much more difficult just because of the way those assets trade.

So today, in order to wrap our heads around all these themes and sort of pick up some of the latest color, really try to answer whether or not we're facing a new credit crunch or stress in the corporate bond market. We're gonna talk to someone who I think at this point must be one of our repeat guests and probably holds the crown of the most Odd Lots episodes ever.

Joe Weisenthal (3:08)

Yeah, I think so. I mean, this might be fourth or fifth. And so we've had a few repeat guests, but I think this current guest is the winner and you know, for good reason.

Tracy Alloway (3:18)

All right, so we're talking to Chris White. He's the CEO of Viable Markets, formerly of Goldman Sachs and really a long time corporate bond market specialist, the perfect person to talk about all this.

Chris, thanks so much for coming on again.

Chris White (3:33)

Yeah, it's always a pleasure. You guys know that this is one of my favorite shows.

I listen to your podcast. I'm a fan as well as a contributor. So it's an honor to hopefully untangle some of the Christmas tree lights that are the US credit market.

Joe Weisenthal (3:49)

We gotta get you a tote bag or something. We definitely need Odd Lots swag. I can't believe we haven't made that, but we definitely need to, for anyone who's been on five times, we need to give them some.

Chris White (3:59)

I think it's four, but you know what? I have a feeling that the fifth one might come up before the end of the year, given what's happening.

Joe Weisenthal (4:05)

Next week, maybe.

Chris White (4:06)

Yeah, exactly.

Happy to talk about what's happening in credit. Tracy, I think that you bring up something that's really interesting, where when we're looking at the health of the markets as they're reacting to COVID-19, we have up to the minute information on every single global equity index, but we really do not know what's happening in the bond markets, particularly the credit bond markets. And what's scary about that is they're so much bigger than they were the last time we had a crisis.

Tracy Alloway (4:39)

So walk us through exactly how pricing happens for corporate bonds, because I think that's going to inform a lot of our conversation. How do corporate bonds trade nowadays? Since we began talking with you, which I think was a few years ago now, there has been some evolution of the way that market functions, but also not that much.