Hello, and welcome to the Credit Edge Weekly Markets Podcast.

My name is James Crumbie.

I'm a senior editor at Bloomberg.

And I'm John if Cooper, a senior credit analyst at Bloomberg Intelligence.

This week, we are very pleased to welcome Christina Patchett, Associate Managing Director at Moody's.

How are you, Chris Good pleased to be here.

Christina, with whom I had the privilege to work a few years ago, as a unique perspective on the credit markets.

Form of her many credit cycles at Moody's and previously as an investment banker at JP Morgan, she regularly meets with investors, regulators, bankers, and she also chairs many high yel rating committees across a broad range of industries.

In her research, she covers the trends in the credit market, including corporate defaults, liquidity, and more recently, the growing private credit markets.

Credit markets are hot, with bond spreads at the titles in almost twenty seven years.

As demand's sows and net new supply remains thin, the buying hasn't been entirely indiscriminate, though, with spreads on the riskiest part of the market triple C rated bonds staying quite wide.

That highlights concerns about missed debt payments as rates stay high and the economy comes under pressure from tariffs and immigration reform.

But it's a quite small part of the market and investors don't really expect blow ups there to have much of a ripple effect.

Moody's had a recent report showing that the number of companies rated B three and lower hit the highest level in almost a year.

For our listeners, not aware that B three rating is equivalent to B minus from other rating agencies, So it's just one notch higher than triple C, which is the grade given to companies that probably won't pay you back.

So Chris break it down for us, Why are there more of these very risky companies right now?

Well, there's a number of dynamics at work here, some from the past and some from the more recent past.

So over time, the B three negative list has become longer as a consequence of higher rates, really weighing on some of the most highly leveraged companies that we follow in the specuative grade universe.

After April, we had another set of challenges around the tariffs and what has happened since then is companies that are either cyclical or vulnerables to specific tariffs have experienced volatility, uncertainty, and rising costs.

So there's been a combination of factors, and going forward they may also feel pressure on the revenue side as consumers become more selective.

So I guess in terms of sectors, I mean, which one are the more exposed and why?

Well, I think what we see is on the industry side.

You might think of consumer durables, automotive, We've had some pressure in a chemical sector, retail and apparel, and I could go on.

But there's another way to think about this population, and that is LBO versus non a LBO, because the majority, the vast majority of the population on our distress list are actually LBOs and they've made themselves to some degree more vulnerable by virtue of being concentrated in floating rate debt, which has put a bigger burden on those companies as rates have stayed high.

But I suppose with you know, tariffs and potential, you know margin squeeze effects from those, you know, some subset some industries will will probably be more exposed.

Is a market differentiating that at the moment or are you seeing you know, significant difference in terms of you know, default rate by by industry or is it pretty homogeneous.

Well, I think it is very easy to discern where there is more skepticism on the part of investors, and so you do see weakness in those industries that are exposed to as more specifically, and conversely you see demand for for example, software companies, and the reason being is that they tend to not be cyclical.

They don't have a lot of a capital expenditure requirements, they're embedded in many companies, so the revenue source is a little bit more secure.

They tend not to be so cyclical.

So yes, you know, there's winners and losers here for sure.

Beyond fundamentals, there's also liquidity to consider.

I mean, the idea generally is that liquidity is very ample for all borrowers and they've got many different options, including private credit.

Is that the case all the way down to B three?

I would say more than it used to be, because that is one of the things that's been notable about this market is even with all the uncertainty, there is still a fair amount of liquidity.

We have seen though some different kinds of discrimination.

For example, we see that the COLO investor has actually decided to more orient towards B two A higher ratings, So these be quite comfortable with the B three B three structure.

Now maybe appeals more to private credit B three negative and below distress.

Everybody kind of hesitates there, although we have seen direct lenders at times step in on these weaker credits, whether they ask the private equity sponsor to kick in more equity.

You know, that may be the case.

We see that much less frequently on the public side.

There, we see we're more likely to see a distressed exchange.

Could you maybe be more specific in terms of maybe for our listeners what moodies define as a distressed exchange as opposed to default of missing an interest payment for instance.

Sure, because I would say that one person's distressed exchange is another person's pick right.

For example, in our world, if a company has committed to at inception of the transaction, committed to servicing their debt and then, due to cash flow pressure, converts to picking payment in kind.

In other words, you build up your debts as opposed to actually providing cash interest.

For us, that is a default.

Secondarily, if you amend and extend your credit agreement.

That can also be considered a default.

Not everybody would across Wall Street assume that, but for us, it means that you're not meeting your original commitment.

I think we would all agree in regard to distressed exchanges that when somebody gives you less than one hundred cents on the dollar to exchange your debt, that that's a distressed exchange.

But that's become so widespread.

You know, these what the bank is like to called liability management, you know, which ultimately is I think a default in disguise, But it has become such a common practice, and even I don't know, six months ago on this show, one of the investors involved was calling it capitalism at work.

You know that you're just going to see this continue, and it's going to get more aggressive.

It's going to, you know, ultimately impact invests even more.

Where do you see this going?

Is it something that you think is going to spiral from here or is it under control?

Well, I guess the way I would describe it.

First of all, it is the majority of our defaults.

Maybe in the last round we looked at it was about sixty five percent of total defaults.

Were what we would call a distressed exchange.

Liability management transactions can emerge in a variety of factions, some much more punitive to certain investors and others, and some of that's been addressed with more recent credit agreements trying to prevent these challenges in terms of getting primed getting ahead of other lenders for example.

Whether this will continue, I think absolutely.

Law firms are very anxious to make as flexible a credit agreement as possible for their sponsor clients, and I think there's nothing that suggests to me, especially in an environment like this where demand is high for paper, that that's going to change.

One point that we would like to make is there is a little bit more movement on the debt investors side to maybe cooperate with each other so that it's there's less tension between investors, that they aren't feeling vulnerable to one pitting one against the other.

Another theme is is covenants, and I guess maybe they're both related.

We've seen you know, looser covenants, I guess o our time, and that is also on the one hand encouraging or creating maybe this kind of face liquidity like liquidity.

At the same time, those loose covenants may also create down the line a much bigger problem for investors.

What's your opinion or what's your view on the current state of the covenant pretiction.

I think I would say, you know, broadly speaking, they're week and they're going to stay weak.

That is, if you think that the majority of credits that default are private equity back to LBOs, they are the borrowers most committed to building flexibility into their credit agreements, and they frequently succeed, especially in a market where there is demand.

I think it is probably worth noting that if you do a distressed exchange once fix your balance sheet and move forward, you actually have a pretty decent recovery, better than the long term average if I'm speaking in broad averages.

But what we sometimes see with companies is they incrementally have subsequent distressed exchanges and potentially ending up in a chapter eleven that kind of destroys value unequivocally, and those recoveries are often the worst.

Seen one study that suggests it's fifty to fifty.

You know that half of these things don't actually work out, in which case you know the lawyers are getting paid, but the problem is not being solved.

Is that sort of a fair amount, fair assessment of what's going on.

It's pretty close to true.

About half the time you do it as stressed exchange, you fix your balance sheet.

You know, maybe it was a production problem, maybe it was a swift change in the rate environment.

But half the time, yeah, you can.

You'll fix your balance sheet, move on, and investors actually, relatively speaking.

Do better.

If, on the other hand, that the other half of the time, yeah, you're just in for a deteriorating credit.

With valuation dissipating over time.

There's a bit of a coin toss.

I'm glad you mentioned recoveries though, because that's also something that has really diminished over time.

I mean, I remember some years ago it must be that you'd expect to get seventy eighty cents back on a loan, for example, but now it's more like thirty forty.

Is that kind of roughly where we are and why is that and where does it go from here?

I would say that's a little bit dramatic.

So historically senior secured loans did recover probably close to eighty cents on the dollar, and that's a long term average.

We have plenty of history to suggests as much.

What really changed was the balance sheet.

And if your entire balance sheet is a first lean loan and average recoveries around fifty cents, you're going to get fifty cents if that particular issuer decides to default.

So it's the change in the structure.

In the old days, which I was present for, you had a senior secured loan and you had high yield bonds.

Highield bonds were unsecured and below the loans and absorbed the majority of the risk.

After the financial crisis, rates went down and the market decided that they liked the loan market, they liked the security, and that market exploded, and to the extent that now we have plenty of credits in the portfolio that are maybe first lean, second lean, but both secured loans or first lean only, and those in distress do the worst.

As you said, this market exploded, and I want to say, and to some extent so default rates.

I think we're close to six percent right now.

What's your antlouch for default rates and why?

Well, that's an interesting question because while defaults were relatively high over the past year, and certainly well above the long term average, our forecast by this time next year is quite the opposite.

So if you think about the default rate today at being close to six percent, it's probably going to be down around three percent according to our forecast by this time next year.

The challenge to that assumption are many though.

There's so much volatility in the market now, there's greater than average volatility.

When we do our forecast, we usually have an optimistic case and a pessimistic case.

The optimistic case and the base case they're right on top of each other.

There isn't any more to give there the pessimistic case, things could get a lot worse.

What does that rely on?

I mean, what is pessimistic?

I mean there's so many different views of the economy and markets right now.

What's pessimistic?

Well, I will say that just to be clear, our forecast isn't bottoms up.

We're not looking at every credit that we rate and saying what does this look like when we aggregate this information.

It's called a credit transition model, and it's driven by the change in ratings, the change in outlooks, the change in the momentum of downgrades, then the high old spread, the change in the high old spread, and the change in unemployment.

So with spreads as narrow as they are, with the expectation that we might get a couple of rate cuts by the end of this year, you actually can imagine that the market will strengthen somewhat at the low end and default would go down.

But there's been so much volatility that you can imagine the investors would take a different view over the next twelve months, and spreads good widen That would be a big driver of a change in our forecast, and unemployment, which is pretty has remained relatively at modest levels today, could worsen.

Those are drivers, right, But now we're in a situation where, you know, all those things make sort of rational sense in sort of macroeconomic terms, textbook style, that we're in a world where, you know, can we trust the numbers on the unemployment side, can we you know, do we know what's going on at the BLS.

There's all this immigration reform that's muddying the waters a bit.

And then the other one is spreads, which you mentioned, which I'm fascinated by at the moment because for so long now people have been asking me why they're so tight when you know the macro isn't isn't amazing, It's not brilliant, but they just keep getting tight.

And I think it's just because there's more demand than supply, as simple as that.

Yeah, No, I agree with you, and I think the issue around the supplied demand dynamic works in the favor of the market for existing issuers, and it might be a technical that allows for them to be that allows for more liquidity, but that can prop up the market for a while.

So with spreads this narrow, you can refinance, you can reprice, and that will support a lot of the market.

It will take much longer, I think for a negative momentum to appear when you have this kind of demand.

It's interesting.

You know, economic fundamentals are very important, but so it's just you know, having someone who wants to invest in your company, and you know, the clos in twenty twenty four and twenty twenty five, I think that's been incredibly strong new issuance and so that supports this market.

And to your point, there's also fairly new entrant in this market is private demand.

Private credit.

There seems to be occurring up tight from you know, private credits, potentially opening this to retail investors.

At some point.

How do you see this playing up in the finance and the companies that you rate well.

I think the part of the market that's public will continue to potentially actually move to slightly higher credit quality because there will be opportunity to go to the private side.

So if you think, for example, of the leverage loan index, it actually weakened pretty dramatically with the demand from clos for low rated paper when rates went down.

As rates went back up, you know, there was this migration as I mentioned earlier, from a B three to a B two, and actually loan size in the index got larger.

So if you think of a larger deal and a higher rated deal as probably improving credit quality, that's what you'll see within the leverage loan market.

And those transactions are migrating to the private side.

So I don't think they're going to get smaller.

I think there's still a lot of liquidity that needs to be put to work, but you could actually see better quality on the public side.

Does that mean that the private markets are essentially paraphrasing and probably being crude but taking all the rubbish that the public markets don't want, you know, those weaker companies are basically paying up for that access.

And how sustainable is that for their bounds sheets.

Well, I'm not going to call it rubbish.

I would call it higher risk.

They and they have a different relationship with the issuers.

For example.

What I did say earlier is that when you have a public issuer and they're in distress, they tend to do a distressed exchange.

If you have a bilateral relationship with a direct lender, you might actually have to put in more equity in order to get that revolver extension or the loan extension or you know, the ability to pick.

So I think I think the answer is more complex and more nuanced.

In that.

That being said, I am certainly concerned that there is more liquidity than assets to satisfy investors and that that is an issue.

And the mystery evaluation is much higher with all these private companies.

You know, if you have a publicly traded entity, you have some sense of the value not always right right.

Market has psychology in it as well, but it is much more complicated to value non traded assets, for example.

And that's sim also to create higher risk because on the private credit side, especially private credit with more open to retail investors, you may have also different you know, liquidity needs or demands that and be created, and maybe potentially a mismatch between what people are planning to lend and for how long and the need to sell some of the assets.

So it could it be like a bit of fatiguing bomb going forward where you may see or may see significantly higher assets being financed when they could maybe not be before.

Well, I think on the retail side, the pickup is going to be slower than might otherwise happen as a consequence of the financial advisors being cautious about introducing these kind of assets to you know, within four on one case for example, So the pickup may not be as aggressive as on the private side, where you have sophisticated investors looking for long term returns.

You know, the advantage of private credit has been that, for example, you have large insurance investors that can tolerate volatility because they can ride out weakness in a cycle.

They have very long horizons that they need to invest.

Theoretically, so do four on one K investors, but they don't always operate that way right.

Sometimes you actually need to take that cash out and they tend to be less sophisticated.

There is a potential for that part of the market to grow more slowly and for more rulemaking to change before that becomes a really dominant part of private credit.

What about disclosure are we are we looking at with a more important role played by private credits?

Could we go towards a model where we are seeing less disclosure transaction that being done away from the public eye.

Pricing reference might actually disappear in the market or when you know it's sort of price discovery mode.

Do you think that that could translate into less disclosure you're in more opescity or more omplix transaction.

Yes, absolutely, and I think that is something that we particularly at Moodies, are sensitive to.

We rate most of the BDC sector, So BDCs are companies that are direct lenders acquiring a lot of these leverage loans to LBOs.

They do have more reporting requirements than other parts of private credit.

For example, they are publicly traded, they are subject to Securities forty Act, and yet it's still a challenge to see the underlying performance.

But they do have to report where the loans are trading every quarter.

It's still a relatively illiquid market, but it does provide some insight.

I think the greater concern is potentially other parts of private credit which are still evolving and which have less requirements.

And what we really see now is an immigration to what we would call asset based finance and greater incursions into securitizations.

Those add not just opacity, but also complexity.

At the same time, I think there's a real demand for capital.

Right.

Some of the things that they are intending to finance is this momentum towards deglobalization, is the need for data centers.

You know, there are certainly reasons why there's this opportunity for private credit.

It just it lacks a certain kind of transparency and a.

Lot of that stuff's actually being rated investment rate, isn't.

It by some body.

That's a tough question for me to answer.

Just changing the topic though, back to private equity.

You know, you mentioned at the top that that has been a source of defaults.

You know, the LBOs have done at very low rates and now they're having to pay that money back.

Where do we stand with that and what's the outlook from here in terms of you know, does private actually come back, do LBOs come back?

Do you expect that to revive it at any point.

You know, it's an interesting question.

We ask ourselves the same question.

A couple of things are certainly true, which has been there's been a really a much slower turnover of these LBOs.

And we've looked at private equity investors holding on to issuers much longer than they would have in a different environment.

But they bought in a zero right environment at a very high multiple, and it's been tough as growth has slowed to grow into that balance sheet in a satisfactorily in a satisfactory way.

So we have seen the slow down in exits, and we've seen a slow down also in new LBA formation for similar reasons.

You know, valuations are tough for sellers as well.

I think though ultimately everyone will need to adjust to the new environment and you will see deal flow come back.

There's too much capital that needs to be put to work.

It's not going to stay you sort of immobilized forever.

When we look at the fall now and the relative stability we've seen in the economy, I think you could imagine this fall being busier than it has been thus far.

But as I pointed out earlier, there's just much more unpredictability within this economy than maybe many of us are accustomed to do, and that has been among the valuation issues itself.

It's not just where rates are, it's not just that growth has slowed, But if you don't know what's happening next on the tariffs, it's much harder to forecast.

Maybe take a step back and look at the credit cycle.

I mean, you have very extensive experience and monitoring and filling with credits.

Where do you think we are in the creative cycle?

Are we kind of have we passed a peak or or not?

Or is it very difficult to say because of all those uncertainties you just.

Mentioned, I think it's harder to call, so thank you for putting me on the spot.

But I we do feel like we've just gone through a pretty notable default cycle.

We've we've watched some companies get flushed out, you know, where where they the multiples were too high, the forecast was too optimistic.

And I think we've been in this environment potentially long enough that there's just going to have to be a more conservative take going forward.

I think it's possible we'll see more equity in some of these LBOs as they try and access the market.

I say that while I would also observe that, I feel like we're still going to see documentation being very much on the borrowers to the borrowers advantage, and that's how they'll balance, you know, the expectation that potentially they create a more conservative balance sheet.

So the default wave is over.

Oh, you're not going to the default wave is over.

We are forecasting lower defaults from what we can see today.

There will always be defaults.

You know, we have a seventeen zero point five percent of the population is be three negative and below.

Will continue to see defaults, will they be lower than they have been over the past twelve months.

I think that's what we expect right now.

And that is essentially speaking to better macroeconomic conditions, better liquidity, and the fact that the bad companies have already been taken out.

Is that yes, fair enough?

Sounds quite bullish.

Therefore, I mean, we debate the what looks like a mismatch between economic fundamentals, you know, balance sheets, leverage and the price.

But it sounds like if we if we're through the worst of the defaults and we're coming out and it's going to get down to three percent next year, that that actually these levels are justified in the market.

I don't.

I don't actually spend most of my day thinking about the the right spread for a certain level of economic risk.

What I would say is that this is a heart this is probably and that you can speak to CEOs, you can speak to people in the in the financial community.

This is a hard market to forecast.

So while I think that we have evidence that you know, there's enough stability for for this market, I think that it's much harder to say what the longer term impact of a materially higher tear for will be on the US economy.

Maybe moving onto the covenants, and you mentioned a couple of occasions, but some of the lenders or the investors are trying to get together and maybe alter a little bit the balance of power between between them.

The companies or the banks that are bringing deals to the market, PE firms and UH and the investors in the end support the risk.

I also noticed that some companies actually have already been pretty aggressive in terms of some examples, I think American Greeding Corporation being sold sponsor to sponsor without triggering any change of control.

Close What are you what do you see on your end in terms of investors trying to afflict their muscles and and try to be maybe a little bit like in the UK, sometimes you see maybe more coordination between between investors to try to tell the scale to where they're in their favor.

There's some of that.

There's occasions where they decide, you know, to you know, coordinate more so that there isn't the dispersion in terms of who gets what and who gets primed.

There's still plenty of opportunities to do that.

I think also on the sponsor side, they're a little more sensitive perhaps and they had been in terms of not alienating investors.

That being said, I think, to use a cliche, investors are often fighting the last war, so you know, some part of the covenant gets exploited, they fix that in the credit agreement, and then they find a new opportunity.

That being said, you know, there's also is some discrimination.

There weren't very many high healed bonds in the market in terms of LBOs, but two recent ones I think it's called Sizzling Platter that was a B three.

They tightened up that bond agreement pretty tightly.

At the same time, there was probably the Sketchers deal.

I think they got everything they wanted, So now that was a B two.

I believe actually it might have been a bee too positive.

So you can see that there is some pressure when it comes to better credit quality if there's positive momentum.

And probably there were a lot of investors interested in holding Sketchers, and so they got all the flexibility that they asked for pretty much, and Sizzling Platter did not.

So the covenant outlook is mixed, and it's not really like it's getting worse.

It's kind of hit a sort of stable level.

But but I do wonder, you know, whether when we see all this, as you said earlier, I think excess liquidity not enough to buy, does that not just keep the pressure on weaker covenants?

Is that not going to push it?

You know?

I mean that the lawyer is a key to be as creative as they possibly can.

So why wouldn't the borrowers jump on it?

One hundred percent?

Yes, I mean I think if you have been in this market for as long as I have said, you know, twenty five years, covenants are very different than they used to be.

And I would certainly argue that if you want to do something aggressive to protect the LBO versus the creditors.

You can there are ways.

Are there any particular areas where we think LBOs might make you come back?

In terms of sectors, Do you think that we're going to see more consolidation in any particular and you mentioned software earlier, is that potential an area for that.

I think that that we are going to continue to see tech deals for sure.

You know, healthcare, we always see a lot of service deals.

Those are probably the three largest exposures, CLOS and BBC's right, both sides of the of the LBO market.

I think that that will continue.

I think the tougher deals will be anything that has a foreign component.

You know, until that gets resolved, that's going to put a lot of that will create a lot of challenges for businesses.

So kind of given the impact that trade has had on tariffs I've had on the market generally on borrowers and the weaker borrowers.

You know, we are at a point where there is one of our guests called stroke of the pen risk and that anything could be signed or announced on truth social at any time that could fundamentally also the landscape for lots of different companies and their balance sheetes do you you know that there are more vulnerabilities potentially out there, and that there is more political risk now in the US market that the will affect leverage finance.

I think that anything that brings greater volatility to the market makes a leverage finance issuer more vulnerable.

These are highly leveraged companies.

You know, it can be geo political, it can be oil crisis, right, it can be COVID.

You know, these are vulnerable companies.

You know, when we rate a company investment grade, it usually means that it can muddle through a variety of cyclical downturns.

Low single big companies, they're vulnerable to it all.

So, yes, none of that has changed.

Very much.

Back to the basics of cash flo predictability and some companies lending themselves to more suited for an LBO than others.

I mean you mentioned healthcare.

Seen a record level of transactions in healthcare, but also very high to fools a couple of years ago that I've come down quite a bit.

But there's also reading uncertainty in healthcare right now, so we could see a bit of a pee cup.

I would think that's been a tough one because in theory it's appealing for an LBO because you know, it tends not to be cyclical, right it take out COVID, which obviously riag TABOC in that area, but in general it should be a relatively stable on the demand side.

What has troubled a lot of healthcare companies generally speaking is change in the regulatory environment on anticipated changes in the regulatory environment, and that those are hard to predict, but they can be pretty dramatic when they happen.

But the risk is more on the foreign ownership side given the administration.

Is that correct?

I mean, if you see a company that's got a foreign ownship or it's got a foreign angle to it, maybe they impose a lot of romative.

Is that something that is particularly like a red flag for ratings?

Well, so I would say not foreign ownership, but foreign input, right, And so will it take them longer to restructure their supply chain things like that?

You know, as in everything in this market, it kind of depends on the price.

I can't I could certainly see a private equity firm looking at a company and saying, you know, if there weren't terriff pressure, it would be a twelve times company now it's a nine times company, and I see an opportunity here, you know, I don't.

I don't think you will see no manufacturing deals for example.

It's just it does create a much difficult forecasting environment.

And it's across the board.

It's not just a couple of sectism and that there's more of a like a widespread impact on leverage, bonds and loans.

Yes.

Yeah.

As a writer, when you look at a transaction, would you, given the uncertainty and the difficulty to forecast earnings, would you say that you're inclined to take an even more conservative or a more conservative approach to the kind of forecast that a company can produce.

I think analysts are looking at their companies and speaking with the CFO and the CEO and trying to come up with a realistic scenario.

You know, every analyst, probably every investor figures out a downside case.

You know, determines whether the downside case is close to realistic or is too dramatic.

But I think it's pretty hard not to build in a certain amount of conservatism on the on the P and L side.

But alternatively, you know, there is the potential for rates to go down, and that means that you might see some increased ability to service the debt.

So I think everything is being taken into consideration, but I think it's fair to say we're pretty conservative most of the time.

You may remember that, John Eve.

The reasons, as John you've stated at the top we're so delighted to have you on the show, Christina, is that you have such a long track record and you've seen a lot of things in the market.

And I'm interested in putting this market into perspective because I've also been doing this a fair amount of time.

But I also find it very confusing in terms of you know, what's going on and what the market does in response to that, And some of the things that we've seen over the last six months would have been enough, I think, to cause a major panic, but the market just keeps going up.

So I'm interested in, you know, if you could put it in some kind of historical terms, you know, how would you compare this market.

So a challenging question without having time to think a lot about the history.

But I would say is most pronounced about being involved in leverage finance is it is always changing.

And I could tell you that you know, the first thing that happened when I was following leverage finance was Russia defaulted on a response and that impacted the US leverage finance market, which was fascinating because you know, they seem quite unrelated.

So that was in the late nineties, and then we went to the dot com bust, and there were a couple of other challenges along the way, but obviously the big challenge was two thousand and eight, and it was very interesting to watch how the change in rates really grew this market from what was almost exclusively a high yield bond market with a very small loan market.

The loan market was probably three hundred billion prior to the financial crisis to where we are today, where if you where the loan market and the bond market, they're about the same size, over three trillion dollars together, and a real concentration in private equity private companies really you know, about half the market or private companies.

So a lot has changed over time.

Not I can't compare today to something that we've seen in the past.

Almost each time it's been quite different.

Right.

The last dramatic moment we would probably leave share would be COVID that was definitely not foreseen, but the market comes back each time.

And in terms of you know, moodies, we look to you to identify risk and I'm keen to know if you know, we've we've talked about a lot today, But is there anything else else out there that you should think we should be more focused on, we should be worried about in terms of, you know, potential canaries in the coal mine for leverage finance.

I think what I pay attention to when I think broadly about the space as opposed to you know, individual ratings or our default forecast, is just given how much liquidity there is in the market today, is there a concern around valuation broadly?

As more of the market is private, whether it's in the leverage loan market on the rated side or within the direct lenders, it's just tougher to get that kind of information, So that I think that's something that is probably one of the big differences as we've evolved over time in this market that I think I keep an eye.

On that ultimately leads to investors overpaying and then suffering losses down the road.

Could but doesn't have to you know, the problems you don't know and when it starts to become a parent is later than you're accustomed to.

Great stuff.

Christina Paget, Associate Managing Director with Moodies.

It's been a pleasure having you on the Credit Edge.

Thanks, and of course I'm very grateful to Johnny Coupan from Bloomberg Intelligence.

Thank you very much for joining us today.

For more credit market analysis and insight, read all of Johnny Coupan's great work on the Bloomberg Terminal.

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I'm James Crombie.

It's been a pleasure having you join us again next week on the Credit Edge.