Increasing Opportunity in Distressed Credit
A view from Invesco Fixed Income
As a result of COVID-19 and related events, we are seeing a clear unfolding of opportunity across the global credit markets. In March, the volume of distressed loans reached a high, eclipsing levels reached during the global financial crisis, with more than 50% of outstanding loans priced at distressed levels1.
Since then, large cap liquid credit (BB loans, etc.) has rebounded substantially, while the more infrequently traded, more inefficiently priced small cap/middle market loan universe has yet to recover. We do not believe the full extent of the pandemic has been priced into the credit markets, particularly in small cap/middle market credit, where we expect weak earnings in the second and third quarters to cause further fundamental pricing pressure. Additionally, we expect earnings misses to trigger ratings downgrades, which can create technical selling pressure for many of the structured vehicles that own the majority of the loan market. Put simply, we believe we have only seen the “tip of the iceberg” with respect to distressed opportunities.
Learn more about small cap/middle market distressed opportunities.
1Source: S&P LCD, March 2008 to March 2020.