(Bloomberg) — Oaktree Capital Group LLC co-founder Howard Marks is bracing for one of the best buying opportunities since the global financial crisis, as higher interest rates and a looming recession push more companies to risk.
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After settling for “modest” yields in part because of cheap credit in recent years, the Los Angeles-based company with about $163 billion in assets is trying to finance those companies struggling to repay debt.
“Now our time is coming back,” he told investors in Singapore this week and in an interview with Bloomberg News.
Marks predicts that US inflation has likely peaked and expects interest rates to remain close to the 5% mark for the next 5 to 10 years. An accompanying change in consumer appetite alongside higher borrowing costs will lead to “significant discomfort” for many companies, he said.
“A year ago the outlook was seen as flawless and I think we’re going to get to a point where they see it as hopeless,” he said of investors. “And that’s when you get the big purchases. That’s when you become a buyer of assets cheaply and a creator of high-yielding loans safely.”
Credit markets have been reeling as the Federal Reserve raises interest rates at the fastest pace since the early 1980s. Banks that agreed to backstop loans at one rate months ago are finding that appetite has changed and funds are demanding higher yields. . That’s prompting firms that specialize in bad debt to prepare for a possible blowout.
Marks said losses for banks from loan-fund deals have hurt credit markets. An example was the acquisition of Twitter Inc. Elon Musk saddled the company with nearly $13 billion in debt that is now in the hands of Wall Street banks that are scrambling to offload it to investors.
After bad debt sales, banks have resorted to selling the loans at discounts of up to 70 cents on the dollar, Bloomberg previously reported.
“Imagine the magnitude of those losses,” Marks said.
And while corporate America as a whole is not particularly trustworthy, distress is piling up, he said.
“This will be a buyer’s market and a lender’s market. We’re going to have much better opportunities,” he said, adding that technology acquisitions over the past 13 years have led to an accumulation of debt. “We will search among the ruins for great opportunities.”
–With help from Paula Seligson.
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