Ares reported earnings this week. As usual, there are a few market related pieces of commentary that were helpful to know.
On spreads today:
So — but order of magnitude, if you were to look at the market today, factoring in OID and credit spread adjustment and the new SOFR environment, first lien loans in the middle market are probably somewhere in the [500 to 550] range with [90 to 95] OID. So kind of pricing 7% to [875] all-in for first lien piece of paper. That’s significantly wider than we saw coming into the beginning of the year.
On risk / return in direct lending:
Ladder Capital also reported this week and had interesting comments about real estate and the credit part of the stack which is their primary business. On credit spreads:
…I know that we talked about how credit spreads got really wide, especially in the CLO business. I think that was a function of a technical, and I think we’ve talked about this, where the 2 year was just galloping higher and LIBOR wasn’t moving. I know at the end of the day, the 2 year at 286 and 3-month LIBOR that 78. So all those spread widening, I think, that you saw, which (inaudible) technical reasons, they would see too far low the 2 years, I think you’re going to see a sharp reversal and the tightening spreads here.
On where BB corporate bonds are trading (and repurchasing their own debt):
The short bond that is due in ’25 for us. We’re purchasing that between 91% and 92%. The 2027 was around 82%. And the 2029 was actually around 78%. There was a follow of 2029 trading in the low 70s at one point. And these weren’t trading at those discounts because anybody thinks that the companies are having it from, that’s just where BBs are trading with 8 years of duration or 7 or 8 years left on them.