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Sasha Padbidri

9Questions is our Q&A series featuring key decision-makers in leveraged finance — get in touch if you know who we should be talking to!

John Wright is the global head of credit investments at Bain Capital. He has held multiple senior roles at the firm, including co-head of liquid and structured credit, and has led the firm’s CLO business since 2016.

We quizzed him about pressure points in private credit, where to find value in today’s credit markets, and where to find the best clam chowder in Boston.

1. You joined Bain Capital shortly out of college, only a couple years after it was founded — what’s been the biggest change during your time there?

When I joined Bain Capital in 2000, the firm’s credit business, which back then was called Sankaty Advisors, was applying a deep, fundamental approach to investing in traded and private credit markets. We believed this approach would generate compelling returns for both our investors and on our own invested capital.

Since then, we have grown from $1bn to over $40bn, invested through many cycles, expanded geographically and added capabilities, but ultimately our approach and principles have remained the same.

2. The private credit and BSL markets have been increasingly converging in recent years. How has that impacted your work?

There was a time when small and mid-market deals would be financed by private credit investors, and large deals would go to the broadly syndicated markets. However, as private credit lenders have grown, many have moved upmarket to compete with broadly syndicated transactions.

For us, this has not been the case — our private credit strategy has purposefully remained focused on the core middle market. We believe this enables us to drive better economics and terms, and deliver the best returns for our investors.

3. Private credit hasn’t really experienced a downturn yet. What do you think is the biggest risk for that market in a recessionary environment?

The biggest risk in a recession is defaults. Pressure on revenues, higher borrowing costs, and overall cost inflation can put pressure on company profits and liquidity. If the US economy enters a moderate to severe recession, we expect the private credit market will experience defaults.

We believe this risk is higher in portfolios where growth was prioritized over credit underwriting.

4. Are there any areas of the credit markets you find particularly attractive at the moment, given current market conditions?

In today’s market, we believe credit overall is compelling relative to other asset classes. That said, one area we find especially compelling is CLO debt.

There are some structural reasons why CLO debt has traded off more than warranted. Bank capital constraints have limited new purchases by domestic banks, changes in the NAIC risk-based capital ratios have limited insurance companies, and negative currency dynamics have reduced demand from foreign buyers. This absence of buyers has been exacerbated by uneconomic issuance from underwater warehouse owners. All of this has pressured CLO debt prices, which creates an attractive entry point.

We believe most CLO debt tranches are well insulated from risk of loss, yet offer much higher returns than comparably rated debt in other markets. In the past, buying at current levels has generated attractive total returns.

5. Last year, the slowdown in CLO formation increased the proportion of vehicles entering post-reinvestment. Are you concerned about how this might impact new loan issuance and secondary liquidity?

Not at all. One of the great features of CLOs is that they are not forced to sell assets. For deals that are post-reinvestment, they can continue to hold loans. As more CLOs exit reinvestment period, the decrease in demand for new loans should benefit new issue arbitrage, as new loans will need to be attractive to CLOs with current market debt costs.

6. There’s also been some consolidation in the CLO space of late. What impact do you think this will have on the leveraged loan market?

CLO management is a business model that works well when scaled appropriately. This does not mean that bigger is always better, though. It’s important to be big enough to access the market when you want and have a strong debt following, but also nimble enough to maintain selectivity and liquidity on your underlying loan holdings.

7. Bain has built a presence in Asia lately, most recently with a $2bn Asia-focused special situations fund. What’s your outlook on credit in that region?

We believe there is a lot of opportunity in Asia, where our firm’s longstanding presence in the region gives us a competitive advantage. We are active in direct lending in certain Asian markets, and expect the credit opportunity set will continue to focus on direct lending or special situations investing.

8. How much importance do you place on ESG? What are the main hurdles to credit investors when trying to incorporate it into portfolio management?

Environmental, social and governance risks have always been an important part of assessing a company’s credit risk. What has evolved in recent years is the focus investors have on reporting and measuring these risks.

The biggest challenge for credit investors, by far, is access to information.

9. You’re based in Boston, which is known for its seafood. In your opinion, which place serves the best clam chowder…and why?

Legal Sea Foods is my favorite — reliably high quality seafood and delicious clam chowder.

9Questions — John Wright, Bain Capital

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