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July 18, 2018

Guggenheim Third-Quarter 2018 High-Yield and Bank Loan Outlook: Late-Cycle Boom Conditions Persist, but Challenges Are Clear


NEW YORK, NY – Guggenheim Investments, the global asset management and investment advisory business of Guggenheim Partners, today provided its Third Quarter 2018 High-Yield and Bank Loan Outlook.

Among the highlights in the 12-page report:

  • Highly leveraged corporate borrowers are thriving in the current environment. Earnings growth accelerated to 18 percent year over year in the first quarter 2018 for high-yield corporate bond issuers. Bank loan issuer earnings growth was also strong at 9 percent. Defaults have declined, leverage ratios have improved, and coverage is healthy.
  • The Federal Reserve’s confidence in the U.S. economy has sharpened in recent weeks. Nevertheless, geopolitical risk continues to weigh on the market, as positive headlines are offset by the trade war launched by the United States.
  • The late-cycle fiscal boost is stoking more investor complacency in the institutional loan market. Recent primary market trends are reminiscent of 2006 and 2007 activity, when heavy activity related to mergers, acquisitions (M&A) and leveraged buyouts (LBO) preceded the financial crisis.
  • Higher M&A and LBO volume is typically accompanied by higher leverage multiples. An increasing share of loans are being issued with 6x or greater leverage multiples, adding risk to a market that for the first time may experience a credit cycle turn without much covenant protection.
  • Although we are not seeing the same level of M&A and LBO activity in the high-yield corporate bond market, it is not entirely immune due to M&A volume in the investment-grade corporate debt market. Fallen angels may create price dislocations in the future.
  • Given little dispersion in pricing, increasingly similar credit profiles, and a convergence in covenant protection between the high-yield and the bank loan markets, we believe opportunities are beginning to look equally attractive in both sectors, but this remains a credit-picker’s market.

For more information, please visit http://www.guggenheiminvestments.com.


About Guggenheim Investments

Guggenheim Investments is the global asset management and investment advisory division of Guggenheim Partners, with more than $246 billion1 in total assets across fixed income, equity, and alternative strategies. We focus on the return and risk needs of insurance companies, corporate and public pension funds, sovereign wealth funds, endowments and foundations, consultants, wealth managers, and high-net-worth investors. Our 300+ investment professionals perform rigorous research to understand market trends and identify undervalued opportunities in areas that are often complex and underfollowed. This approach to investment management has enabled us to deliver innovative strategies providing diversification opportunities and attractive long-term results.

 

Media Contact

Gerard Carney
Guggenheim Partners
310.871.9208
Gerard.Carney@guggenheimpartners.com

 

1Guggenheim Investments assets under management are as of 3.31.2018 and include leverage of $12.2bn. In April 2018, Guggenheim Investments closed the sale of the firm’s Exchange Traded Fund (“ETF”) business representing $38.6bn in assets under management, which will be reflected in the June 30, 2018 assets under management. Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Real Estate, LLC, GS GAMMA Advisors, LLC, Guggenheim Partners Europe Limited and Guggenheim Partners India Management.

Investing involves risk, including the possible loss of principal. Investments in fixed-income instruments are subject to the possibility that interest rates could rise, causing their value to decline. High-yield and unrated debt securities are at a greater risk of default than investment grade bonds and may be less liquid, which may increase volatility.

This material is distributed or presented for informational or educational purposes only and should not be considered a recommendation of any particular security, strategy or investment product, or as investing advice of any kind. This material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. The content contained herein is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation.

This material contains opinions of the author, but not necessarily those of Guggenheim Partners, LLC or its subsidiaries. The opinions contained herein are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. No part of this material may be reproduced or referred to in any form, without express written permission of Guggenheim Partners, LLC.



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Guggenheim Investments represents the investment management businesses of Guggenheim Partners, LLC ("Guggenheim"), which includes Security Investors, LLC ("SI"), Guggenheim Funds Investment Advisors, LLC, ("GFIA") and Guggenheim Partners Investment Management ("GPIM") the investment advisers to the referenced funds. Securities offered through Guggenheim Funds Distributors, LLC, an affiliate of Guggenheim, SI, GFIA and GPIM.

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