Liquid Credit’s Wobbles Are Good for Private Lenders, Ares Says

Ares Management Corp. views recent liquid credit market failures, including First Brands Group and Tricolor Holdings, as advantageous for private lenders, rather than a signal of broader risk. According to Ares Capital Corp. CEO Kort Schnabel, these collapses are not significantly impacting their private credit market and instead present an opportunity for Ares to secure more deals, indicating a potential shift in deal flow or improved terms for private debt.

Analysis

The article highlights recent failures in the liquid credit markets, specifically involving First Brands Group and Tricolor Holdings, which have fueled concerns about risk within private debt portfolios. However, Ares Management Corp. (ARES) executives view these events as advantageous for private lenders, rather than a signal of broader systemic risk.

Kort Schnabel, CEO of Ares Capital Corp. (ARCC), stated on an earnings call that these collapses are not significantly impacting their private credit market. Instead, Ares perceives these market wobbles as an opportunity to "snag more deals," suggesting a potential shift in deal flow or improved terms for private debt transactions.

This optimistic outlook, reflected in a moderately positive sentiment (0.6) for both ARES and ARCC, indicates a potential divergence in performance between liquid and private credit segments. Ares's confidence implies that its market positioning and underwriting may allow it to capitalize on dislocations in the broader credit market, potentially leading to increased market share and attractive investment opportunities within private debt.

Key Decisions for Investors

• Investors should assess their current private credit exposure, recognizing that market dislocations in liquid credit may present opportunities for well-capitalized private lenders like Ares.
• Consider evaluating ARES and ARCC for potential upside, given their stated ability to capitalize on market wobbles through increased deal flow and improved terms in the private debt space.
• Differentiate between liquid and private credit market dynamics, as the article suggests a potential divergence in performance and risk profiles that could impact portfolio allocation strategies.