Autor Tema: PPCC: Pisitófilos Creditófagos. Otoño 2023 (Leído 711447 veces)

Derby · « **Respuesta #390 en:** Octubre 08, 2023, 18:36:30 pm »

https://finance.yahoo.com/news/bank-of-america-analysts-see-no-housing-crash-like-in-2008-150020980.html

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Bank of America analysts see no housing crash like in 2008

Bank of America economists are nixing concerns about a housing crash like the one experienced in 2008. Instead, they say, the market is more reminiscent of four decades ago.

Unlike 2008, there’s no evidence of overdevelopment from builders or over-leveraging by homebuyers and owners. The housing market today is largely dealing with the fallout from tight monetary policy — similar to 1980.

There are some key differences, though, but the main takeaway from Bank of America is that there’s still a rough road ahead for housing.

"Looking back at previous housing recessions, we think the 1980s are a better analogy for today’s market than the 2008 housing crash," Jeseo Park and Michael Gapen, US economists at Bank of America Securities, wrote in a note . Still, "with rates likely staying higher for longer, we are cautious of potential turbulence ahead."

It’s not 2008

In the years before 2008, builders were on a building binge, leading to "excess development," they wrote. While homebuilding has ramped up over the last year, it lags — by far — the pace developers logged from 2000 to 2006.

Home loans were also easier to get in the years leading up to 2008 with looser standards as the norm. Lenders didn’t check income, made loans to risky borrowers, and allowed purchases with no money down. They also peddled irresponsible adjustable-rate mortgages that later ballooned balances and had no cap on rate increases.

Purchasers now face higher standards — and did even during the go-go homebuying years of the pandemic. That’s a major difference, the economists pointed out.

"Household mortgage debt was 65% of disposable income in 2Q 23, compared to a peak of 100% at the start of the financial crisis," they wrote. "The ratio of mortgage debt to real estate assets (i.e., loan-to-value) was 27% in 2Q 23, significantly lower than 2010."

More of an 80s feel

Instead, the economists argue, the housing market resembles the early 1980s in several key ways. Back then, inflation was also running high. In the years leading up to 1980, the consumer price index, or CPI — a closely watched inflation gauge — jumped to 14.8% on an annual basis.

To combat rising prices, the Federal Reserve raised interest rates, which consequently doubled mortgage rates from about 9% to 18% by 1981, hurting the housing market just as baby boomers entered their prime homebuying years.

Sound familiar?

Fast forward to June 2022 when inflation reached its highest level in more than four decades with the CPI increasing 9.1% year over year. The Fed, recognizing that inflation was a growing problem even before that, had started its rate hiking campaign that March.

Like in the early 1980s, the Fed’s actions indirectly affected mortgage rates, with the rate of the 30-year fixed mortgage rate more than doubling from 3% in January 2022 to 7.49% this month. The impact has hit yet another large generation entering their homebuying years: Millennials.

"While to a degree home sales can be supported by activity from this prime age group, persistently high mortgage rates should make the decision of purchasing a home more challenging in the near term," they wrote. "Indeed, favorable demographics were not enough to hold up the market in the 1980s and will likely not be enough to stimulate the market this time around."

Other housing indicators then and now are also similar.

For instance, home prices surged over 16% in 1979, then flatlined as year-over-year growth slowed to just 0.5% by 1982. Existing home sales dropped 54% from peak to trough, revealing how much demand fell off.

Similarly, home prices climbed nearly 21%, before flattening to 0% yearly growth basis in June of this year. Existing home sales have plunged nearly 40%.

Still, there’s a noticeable difference between now and then when it comes to leverage.

Mortgage debt to disposable personal income hit 65% in the second quarter of this year compared with a peak ratio of 45% in 1980.

"At first blush this difference may seem concerning, but one explanation is that the speed of home price growth has exceeded income growth over the years," the economists wrote. "Household balance sheets are in very good shape at the moment, and leverage does not appear to be a major concern."

Looking ahead, Bank of America expects limited housing inventory, high prices, and labor shortages to be headwinds for some time. Affordability continues to be a problem as home price growth still is exceeding income growth. In 2022, the median sales price of new single-family homes was over five times the median household income, according to the Bank of America note.

"We remain cautious of potential turbulence ahead," the researchers noted. Only a cut in rates can improve affordability and create a "stable and healthy housing market."

Bank of America analysts expect the Fed to raise rates by a quarter-point in November and are predicting a rate cut of the same magnitude in June of next year, according to a company spokesperson. By year-end 2024, they expect rates will be down by three-quarters of a point and then down another full point in 2025.

"Until then, hang tight," the researchers wrote about the housing market. "It may be a bumpy ride."

Cadavre Exquis · « **Respuesta #391 en:** Octubre 08, 2023, 21:11:16 pm »

Cita de: Derby en Octubre 08, 2023, 18:15:20 pm

https://www.wsj.com/finance/fed-rate-hikes-lending-banks-hedge-funds-896cb20b

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The New Kings of Wall Street Aren’t Banks. Private Funds Fuel Corporate America.
With interest rates at multiyear highs, hedge funds and private equity are taking over lending

By Matt Wirz | Oct. 8, 2023

Hyland Software, a business software company based in Ohio, relied on Credit Suisse for years to arrange billions of dollars in loans. After the Swiss bank collapsed in March, Hyland switched tracks and borrowed $3.4 billion from a little-known investment firm, Golub Capital, and others that specialize in a Wall Street craze known as “private credit.”

High interest rates, driven by the Federal Reserve’s higher-for-longer policy, are shaking up how corporate loans get done. Soaring rates brought down banks such as Credit Suisse and Silicon Valley Bank and forced others to reduce lending. As those lenders stepped back, private-credit fund managers stepped up, financing one jumbo loan for American corporations after another.

This shift is accelerating a trend more than a decade in the making. Hedge funds, private-equity funds and other alternative-investment firms have been siphoning away money and talent from banks since a regulatory crackdown after the 2008-09 financial crisis. Lately, many on Wall Street say the balance of power—and risk—has hit a tipping point.

“There’s been a steady progression, but since Covid and the banking crisis this year we’ve really seen the banks rein in risk,” said David Snyderman, head of alternative credit and fixed income at Magnetar Capital.

Magnetar, a hedge fund once known for bets against subprime mortgages, recently arranged a $2.3 billion loan for CoreWeave, a red-hot cloud-computing operator for artificial intelligence. It was Magnetar’s biggest private loan yet.

The loans are expensive, but for many companies they are the only option. Next, private-credit firms are coming for the rest of the credit market, bankrolling asset-backed debt for real estate, consumer loans and infrastructure projects.

Private-equity firms use revenue from most of the loans to make leveraged buyouts, saddling the companies they acquire with expensive debt. Ultimately, more companies could end up under their control.

Regulators, concerned that so much money is going behind closed doors, are rushing to catch up with new rules for private fund managers and their dealings with the insurance industry.

The firms have money to spend from clients such as pensions, insurers and, increasingly, individuals. Those investors piled in because returns were high compared with other debt investments in a low-yield world. Private lenders delivered average returns of 9% over the past decade on loans made mostly to midsize businesses, according to data provider Cliffwater.

Revenue from new corporate loans has shrunk for banks and credit-ratings firms. Their stocks have lagged behind those of private-credit managers over the past three years. Last month, Blackstone BX became the first alternative fund manager included in the S&P 500, boosted significantly by its credit business.

Some analysts are concerned about private credit taking over the loan market.

The shift “has concentrated a larger segment of economic activity into the hands of a fairly small number of large, opaque asset managers,” credit-ratings firm Moody’s Investors Service said in a September report. “Lack of visibility will make it difficult to see where risk bubbles may be building.”

There are risks to investors, too. High interest rates are making corporate borrowers more likely to default on the loans. Some managers are concentrating their exposure by making bigger loans backing multibillion-dollar deals.

“The music’s been playing and everyone’s been having a good time, but now the music is winding down and things are getting harder for businesses and lenders,” said Philip Tseng, co-head of U.S. direct lending at BlackRock. “That’s going to demonstrate how much experience matters.”

If private lenders keep refinancing debt from large companies that struggle to borrow in the bank market, that could also lower the average quality of their investments. About half of the $190 billion of below-investment-grade bank loans coming due in 2024 and 2025 are rated B-minus or below.

Private-credit assets under management globally rose to about $1.5 trillion in 2022 from $726 billion in 2018, according to data provider Preqin.

A handful of the fund managers control about $1 trillion combined, according to research by The Wall Street Journal. Some—such as Apollo Global Management, Ares Management, Blackstone and KKR—started out in private equity and distressed-debt trading and have expanded into private lending. Others—such as Blue Owl Capital, HPS Investment Partners and Sixth Street Partners—are relatively new firms set up specifically to provide private capital.

While big funds have gotten bigger, the field of private credit is also getting broader, including traditional investment companies and alternative-asset managers. Shoe retailer Cole Haan borrowed in recent months from mutual-fund giant BlackRock and hedge-fund manager Fortress Investment Group to repay a $290 million loan from JPMorgan Chase.

“It’s kind of nuts that there used to be just three or four of these [lenders] out there and now you can have 30,” said Erwin Mock, head of capital markets for Thoma Bravo, the private-equity firm that owns Hyland and negotiated its new loan.

Companies are using private debt to retire bank debt at unprecedented levels. Financial software maker Finastra borrowed $4.8 billion from Blue Owl, Oak Hill Capital and others in August to refinance a loan arranged by Morgan Stanley. It was the largest private loan on record.

Asset managers are able to handle these monster loans, the size previously reserved for banks, because the firms are tapping deeper pools of capital.

Apollo, KKR and others have built, purchased or partnered with insurance companies that have hundreds of billions of dollars they need to invest. Much of the insurance money must go into investment-grade debt, so the firms are branching into asset-backed debt that is higher rated than most corporate loans.

Apollo financed an almost $2 billion debt deal in December to music publisher Concord. The debt is backed by royalties from songs including works by Daft Punk, Little Richard and Pink Floyd. The firm also bought Credit Suisse’s asset-backed business.

Others see potential selling to much smaller investors.

“Individual investing in [alternatives] is still in its infancy,” said Ares Chief Executive Michael Arougheti. “We believe it is a trillion-dollar end market, and the only question will be how rapidly it grows.”

Some fund managers, such as Golub, have grown adept at using collateralized loan obligations, or CLOs, to borrow more money, then lend it out.

Private-credit funds don’t require borrowers to get credit ratings, and they guarantee completion of buyout loans. Banks, meanwhile, might back out when markets turned rocky. But private-credit loans have tougher covenants, prohibiting borrowers from selling assets or raising new debt to get cash. Private loans also charged average interest rates 5 percentage points higher than comparable debt in the bank market over the past 10 years, according to an index operated by Cliffwater.

Private-credit investors may fare better than bank-loan holders in the long term because of their better covenants, Goldman Sachs analysts wrote in a September research report. They are also owned by just a few lenders. That enables private creditors to intervene faster in times of financial stress and to recover more if a borrower defaults, the analysts said.

The industry has been expanding ever since fallout from the 2008-09 financial crisis curbed banks’ risk appetite. Holding leveraged-buyout loans worsened their scores on regulatory stress tests.

“Investors wanted yield, and the government wanted credit risk away from the taxpayer,” said Joshua Easterly, co-president of Sixth Street, a private-credit firm he co-founded with other Goldman Sachs veterans. “That created the environment for this market to mature.”

Private credit shot ahead in the pandemic when crisis-struck banks froze up, stoking worries of mass defaults. Credit-ratings firms quickly downgraded dozens of companies—something they were criticized for not doing fast enough in 2008—making it even harder for the borrowers to get new bank debt.

The cycle intensified starting last year when the Fed tightened monetary policy and banks pulled back further. Interest rates on bank loans are normally much cheaper than the rates on private credit, but the difference between the two has shrunk to levels not seen since 2008. That makes bank loans less enticing—relatively, anyway.

Average revenue from making syndicated loans has dwindled to 19% of bank-fee revenue from 27% a decade ago, according to Dealogic. Banks are becoming far more reliant on income from advising on mergers and acquisitions or for connecting borrowers to private lenders.

Glatfelter Engineered Materials hired investment bank Lazard to help it find a new lender this year to repay a bank loan. Rising commodity prices and the Ukraine war had hammered its business selling specialty fibers, triggering a roughly 90% plunge in its shares and credit-rating downgrades.

“The banks had started to clam up even before SVB, and we had a choice to make—be subjected to whatever direction our bank group wanted to take us in or tap in to private capital markets,” said treasurer Ramesh Shettigar.

Lazard ran an auction with more than a dozen lenders, and Glatfelter got a new six-year loan from credit specialist Angelo Gordon. The deal charges a hefty 11.25% annual rate, but Glatfelter can defer cash payments for two years.

Peter Santilli contributed to this article.

Write to Matt Wirz at matthieu.wirz@wsj.com