Market & Topical Perspectives

Alternative Credit: 2021 Outlook

Alternative Credit: 2021 Outlook

While there were a range of fundamental factors—including corporate debt vulnerabilities and continued geopolitical tensions—to suggest the credit cycle was in a mature state heading into 2020, the exogenous shock of a global pandemic was not on many radars. The swift recovery of risk assets after the initial Covid-19 selloff was perhaps as unexpected, but lenders responsive to last year’s shifting liquidity environment likely were well positioned for this rebound.

Key Takeaways

  • Key-Takeaway

    A benign credit market in early 2020 was thrown into disarray with the onset of the Covid-19 pandemic before massive central bank intervention helped restore order and renew investor confidence.

  • Key-Takeaway

    With companies eager to bolster their balance sheets in the face of economic lockdowns, 2020 saw record levels of issuance in investment grade and high yield bonds. Net new issuance of loans lagged, however, as the market for collateralized loan obligations took several months to return to trend in an environment that rewarded duration.

  • Key-Takeaway

    Fundraising for private debt slowed in 2020, and limited partners showed a clear bias toward established general partner relationships rather than launching new diligence efforts with unfamiliar lenders in a remote environment.

  • Key-Takeaway

    With substantial monetary and fiscal stimulus likely to persist but the wounds of 2020 still raw, 2021 looks set to be a year of “muddling through.” Though not without its risks—both systemic and idiosyncratic—such a backdrop would be generally supportive of well-selected credit assets.

  • Key-Takeaway

    With a focus on generating structurally defensive income through rigorously underwritten investments offering attractive risk-adjusted returns, First Eagle Alternative Credit remains biased toward assets at the top of a company’s capital structure—senior-secured, first-lien loans, both broadly syndicated and directly originated.