Oaktree Capital - Thu, 10/26/2023 - 16:24

Performing Credit Quarterly 3Q2023: Tails, You Lose?

How healthy are today’s leveraged credit markets? If you focus on averages, you’d likely conclude that fundamentals are fairly strong despite elevated interest rates and slowing earnings growth. The average debt-to-EBITDA ratio for U.S. leveraged credit was around 4.0x at the end of the second quarter, down from a high of 6.5x in 4Q2020 and just under 5.0x in 4Q2019.¹ While average interest coverage ratios² have deteriorated over the last year, the current levels – 5.3x for U.S. high yield bonds and 4.5x for U.S. leveraged loans – aren’t sounding alarm bells.³ However, this environment reminds us of one of our co-chairman Howard Marks’s favorite adages, concerning the six-foot-tall man who drowned crossing the stream that was five-feet deep on average.

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Oaktree Capital Management, L.P.

Oaktree is a leader among global investment managers specializing in alternative investments. The firm emphasizes an opportunistic, value-oriented and risk-controlled approach to investments in credit, private equity, real assets and listed equities. Insurance companies are one of the largest client segments at Oaktree, with more than 27 years of experience managing capital for the sector. Our dedicated global insurance solutions team partners with clients to develop new strategies and customize our solutions.

www.oaktreecapital.com

Greg Halagan
Managing Director and Head of Insurance Solutions

333 South Grand Ave., 28th Floor,
Los Angeles, CA 90071