Bloomberg Global Credit Forum 2026 - Steven Tananbaum

And it also is very competitive. There's hundreds of different managers out there. I remember when I started at Mai Shields, we were 89 out of 91. And within three years, I was very proud we got to be number one. But that's a lot of people to compete against. And you get your scoreboard every day. But more importantly, strategically there was the mindset of why do people buy? Why do they sell? And can you frontrun that? Can you predict if the premise, if you're thinking of investments as maybe as short movies and how's a movie going to end? And if your premise is if this happens and this happens, can I sell, who am I going to sell it to and why are they going to buy it? And so, you know, part of that could be liquidity. Part of it can be the stats. Why isn't somebody going to buy the four times levered software company that's growing at 11%? Sure, they're going to be upset that they didn't buy it at 20%, but it was five and a quarter or five and a half times leverage back then and the mindset was different. So I think that and if that looks attractive for instance just using an example to what else is in the market that's yielding 10% or 9% there's going to be enough takers in that. So having that mindset's always been attractive and helpful. There's also the, you know, you look at something like COVID and okay how are people going to behave? There was usually, I remember in mutual funds that when people got redeemed they would sell what they could sell quickest, you know, or what was most liquid. I always tried to sell my semi-liquid product because I know I could never sell it in another week if this continued. So there's just different strategies to think about.

Sure. So there was a bigger question. We were talking just a few moments ago about the perspective on credit, particularly total return credit, and there's probably frustration because some other asset, equities are participating significantly, and credit broadly speaking is in the low single digits. So there's frustration and anxiousness. How do I capture returns against that backdrop? You have great current yields and still value when you subtract out versus defaults that justify being in credit.

So, when we spoke in January at Davos, I mentioned how the setup was poor for credit and good for equities. Historically, when you've had stretched valuations in a midcycle where the economy is expected to grow at 2% or better, your returns in credit are less than the coupon, and that's exactly what's happened so far. In contrast, usually that's a great environment for equities and that's what's happened. And even if you look at the equal weighted S&P, it's certainly beginning to catch on. So, it's been a more broader rally, particularly the last few weeks, even in the face of Iran on again, off again conversations. Credit has still languished and we expect that to continue. Now, that's not to say that it can't have a better second half, but I do think there are some pockets of opportunity. But this is historically a tough time to be in credit in terms of in the cycle.

It's just how it's priced. It's priced as if defaults are going to be low and that the corporate earnings are going to, and that they're more likely to disappoint. You're not getting paid to increase corporate earnings or for earnings to surprise on the upside and you're being heavily penalized if they surprise on the downside. In the equity market, there's still some acceptance or excitement if you're taking up numbers.

So, it's very situational. There's the expected distressed which is in software where the business model is getting called into question. Then there is also in telecom another business model that's getting called into question and there is an interesting relationship between the public equity as you look at a Comcast, I think that's hitting a new low as we speak, a 52-week low, if not it's certainly close to that, Charter probably in the same camp, Cable One in the same camp, but yet some of the debt isn't. So I think that's kind of an interesting relationship, the debt. And what happened, I guess, recently with Altice with threatening a transaction. I think it's all a ploy for negotiation, but it probably brings people to the table sooner if it works. It's the same team that brought you Balash, and we respect them an awful lot, but it kind of went nowhere when there was a bunch of, I guess, potential transactions being contemplated that didn't get to the finish line from the equity. So playing the debt equity structure in creative ways is one way that you're playing with it.

Well, when you look at the devil's in the details in terms of what the terms are, but when you look at who's backstopping it, they seem like good credits and people tend to think of two and three years out, not five or 10 years out. And it looks like for two to three years out, you're getting overcompensated for the risk. On the other hand, you're dealing with terrible technicals. They don't seem to run out of product. And I think even this Google financing is suggesting that they want to make sure to be out in front of the financing in terms of the equity and there's almost, not almost, there is an arms race going on and the issue is will the infrastructure investment be justified or will this be more like underwater cable which was a good thing until it wasn't.

I'm somewhat agnostic, but history would have a bad record in terms of overinvestment for industries that have very high payouts, whether it's riverboat gambling to something like undersea cable. So you know it's not a great precedent but there's an argument that, you know, I understand the arguments now and I think our view is to be very deliberate to have additional assurances by the users that they're committed to these projects. Would you rather invest in the high yield part or the investment grade part with the all-in backdrop? The idea that it tends to be lower duration, shorter maturity, and the high yield, but higher risk, investment grade, longer duration, but tied to very different points in this funding, you're going to get high yield type of spreads in the investment grade market. So, the issue is, you know, what you do in between them.

No. No, because if it's two or three years, that's a lot of return to give up. But to be deliberate about what you're getting versus the opportunity of what you might be getting and, you know, I'm incredibly fickle on these topics. So, I could, you know, in a month or two could just have a different perspective with more evidence.

First is you got to assume you can't be nimble in less liquid instruments and lower prices brings in illiquidity. Higher prices brings in confidence. So that's kind of the way the credit markets work. Just trying to ask as many questions and focus on what we think are the key variables. And something like AI, you can be overwhelmed by so much. So to try and look at some of the larger issues and just focus on that and be deliberate, you know, because there's so much supply, the idea of you're going to run out of opportunities isn't a real, you know, that's not realistic. There's going to be something to do in this space particularly as it continues to be successful.

So when we look at asset classes, probably the asset-backed asset class we find the best value which is a private asset class so we're finding good value there. In private credit there's some of the more anxious capital of the open-ended private credit funds are out of the market. So that leaves the funds and other players in private credit who are more deliberate being the main buyers of private credit. So we're seeing good value there. We're seeing good value in some of the out of favor sectors which is always the case. I mean by definition out of favor sectors are at discounts. But so I'd say it's eclectic, but we certainly are seeing better value in private credit today than we've seen in the last 24 to 36 months.

That's always after the fact comment. But it seems like you're getting better paid. In the absolute when I think of things, I think it's if I were to say out of 10, maybe a six, you know, six and a half. So, it's above average, but not by much.

Inflation is probably the biggest risk in the market and it's impacted, because it's impacted rates much more credit than it has equities which I'm surprised at but it just is what it is. And if you look in the 70s, equities did better than credit. So you know if you're looking at a bad environment at least that's one example where equity outperformed credit. It's very much data dependent. It's also what's going to happen with the war. You know, if you look at one of the big surprises so far this year is oil has been relatively calm in relative to what expectations. Most people thought if you got past Memorial Day you would be 125, 135 but yet we're in the mid 90s. So I think that's a factor that seems to be developing. So it's hard to have a line to draw a line in the sand on that.

So I've kind of processed it a little different is how are equities pricing this and equities seem to not be pricing the futures curve so on the strip curve. It's just so, oil service, sure Halliburton's having an excellent year but when I look at some of the midcaps very much pricing in I'd say 70 to 75 oil and when we see the M&A market in oil services and we have a company that we own more than half of that looks at the M&A market and has bought a few companies in the past 12 months and that market hasn't changed that much so in terms of levels and pricings and multiples and expectations. So we see the regardless of what people are saying, how they're voting with their feet, they're still very cynical of how long this will last. And that's probably it seems like a better opportunity that it's going to be higher for longer than what's in the market.

Yeah and suppliers but also when you're thinking about oil as an input to your companies and I'm thinking as a portfolio manager okay what should we be assuming in terms of whether it's in building material products and which oil can be an important input, you know what does it mean for inflation etc is going to be higher for longer.

So I look at it as almost 75%, 73% of people who are like, yeah, what else can you say? Yeah. And so, you know, it seems about fair. What's being, what's a strategy that's been very popular this year in terms of inflows is opportunistic credit having a long playbook and instead of a distress manager a private credit manager how about a manager who can look for the best opportunities with a long playbook. So that strategy has been gaining a lot of traction. I think the positioning in credit in terms of getting alpha and dispersion is, that's not surprising with the results here.

So, we're midcycle in a stretched environment where it's very narrow for what the opportunities are. That's like most markets I've been in. I mean, that's like just...

But if you were to go back and count stretched valuations, very little dispersion except for a certain percentage of the market. Call it less than 20% of the market. That's kind of most markets. I bet I haven't, I bet it's three-quarters of the market is, it's certainly more than half.

Well, I think that what's different this time because every cycle has something that's different. And what's different this time is the AI expense and what the ramifications of who the winners and losers are. And you could have said that with media, with the internet and who's going to be, when I think of software and try and conceptualize who the winners and losers are. I look at legacy media and there was TV which went from call nominal growth to less nominal growth but still growth. You look at cable programmers who still had above nominal growth for about 15 years. So those were healthy businesses. You had radio that call it by 2008 or 2009 seemed to really be a more marginal product and then by the late teens really in trouble and then you had newspapers which really peaked about, I'm trying to think of the Tribune transaction of 2006, 2007, I'm going to think 2005 so after 2005 really began to be disintermediated so where does some of these industries fall with that methodology.

Although it's not on the band, right? So when you're thinking about radio, as I grew up with it, it was AM/FM. Really FM for the most part though. I think I remember being invested the largest creditor in MS which was WFAN on the AM band but it's a different medium for radio.

Thank you.