Global credit market remains 'favourable' in the second half of 2021, Investcorp says

Strong performance to be driven by continued global economic recovery, improved credit fundamentals and strong demand for loans

Investcorp. Courtesy Investcorp

Investcorp, the alternative asset manager that counts Mubadala Investment Company as its biggest shareholder, expects the global credit environment to remain favourable for the remainder of 2021 as the world economy continues to recover from the Covid-19 pandemic.

While central banks remain accommodative, capital markets are accessible to borrowers and credit fundamentals continue to improve, the Bahrain-based asset manager said in its third-quarter credit markets review on Monday.

“We expect the favourable trends we saw in H1 to stay through [to the] year-end," Jeremy Ghose, global head of Investcorp Credit Management, said.

"Amid strong global growth in recent months and a supportive economic backdrop, we continue to remain optimistic about the future of global credit market performance.”

About $4.8 trillion was added to the global debt pile in the second quarter of this year, pushing the total to a record $296tn as sovereigns, corporates and households continued to borrow amid pandemic-driven uncertainties, the Institute of International Finance said in a recent report.

The overall debt, which declined slightly during the first quarter of this year, rose by more than $36tn in the quarter ending June 30 from its pre-pandemic level, it said.

Demand for loans remains strong, with collateralised loan obligation (CLO) issuance reaching a record $79 billion in the first half of 2021 and projected to touch $140bn by the end of this year, according to Investcorp.

Even as the more virulent Delta variant of the coronavirus may delay a full post-pandemic reopening, Investcorp said it was unlikely to derail the ongoing recovery.

“While the Covid-19 Delta variant has emerged as a potential deterrent to growth expectations, credit fundamentals are nonetheless solid and improving and CLO issuance has reached record levels to meet high demand for floating rate loan assets,” Mr Ghose said.

The fund manager expects US leveraged credit, loans in particular, to continue to perform well on the back of strong US economic growth heading into 2022 and central bank policy of keeping rates steady until the first half of 2023.

European credit markets are also set for a positive second half driven by ultra-low default rates and increasing credit spreads. In the first half of 2021, European credit markets recorded total issuance across loans and high-yield bonds of €151.5bn ($177.39bn), an 8 per cent rise from its previous record in 2007.

“The European credit market has continued to demonstrate its resilience in Q3 this year, with record levels of new issuance, a rebalanced supply/demand dynamic and almost non-existent defaults. We expect that this growing market creates more opportunity to diversify risk and rotate our portfolios in order to increase yields,” Philip Yeates, head of European Credit Funds at Investcorp, said.

The US credit market benefited from similar tailwinds to its European counterpart this year, said David Moffitt, co-head of US Credit Management at Investcorp.

Investcorp has assets worth more than $37bn under management, while Investcorp Credit Management, its global credit investment platform, currently manages assets worth more than $14bn.

Updated: September 20th 2021, 12:38 PM