"This Is A Very Scary Scenario": Restructuring Legend Warns Of Coming "Perfect Storm"
07/12/2018
Two months ago, we brought to your several very concerning quotes from some of the nation's top restructuring bankers, of which the most dire warning came from Bill Derrough, the former head of restructuring at Jefferies and the current co-head of recap and restructuring at Moelis who admitted that: "I do think we're all feeling like where we were back in 2007. There was sort of a smell in the air; there were some crazy deals getting done. You just knew it was a matter of time."
What he is referring to is not just the overall level of exuberance, but the lunacy taking place in the bond market, where CLOs are being created at a record pace, where CCC-rated junk bonds can't be sold fast enough, and where the a yield-starved generation of investors who have never seen a fair and efficient market without Fed backstops, means that the coming bond-driven crash will be spectacular.
"Even if there is not a recession or credit correction, with the sheer volume of issuance there are going to be defaults that take place," said Neil Augustine, co-head of the restructuring practice at Greenhill & Co. He is right: as we showed recently using the following chart from Credit Suisse, after languishing around 1%-2% for years, default rates have jumped the most in 5 years, and are now "ticking higher."
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