The church of Milken is a broad one, so everyone’s going to have a different opinion on what the main themes were. But from our perspective, if last year was all about AI and private credit, this year was about creditor-on-creditor violence and private credit.

Not that you’d know it from the line for Musk’s appearance:

The queue for the Musk keynote (photo by 9fin)

All is fair in love and liability management

So-called liability management exercises are becoming more commonplace these days, as shareholders (and opportunistic creditors) find new ways to exploit the looser debt documents that have become widespread over the past few years.

As much as these deals can be frustrating and painful for some creditors, they’re often a great opportunity for other lenders — and, some might argue, unavoidable for shareholders looking to maximize their optionality and conserve equity value.

“If there is an opportunity to take advantage of those loose covenants, are you obligated to take advantage of that?” said Michael Buchanan, co-chief investment officer at Western Asset during a panel on Monday. “If you don’t do that, are you avoiding your fiduciary responsibility?”

There’s also a spectrum of liability management: more benign transactions often get strong support, such as a recent well-subscribed maneuver from City Brewing, whereas bombshell priming deals like Ardagh tend to invite more controversy.

“There are certain situations where you need to do an amend-and-extend on a short-term maturity, and then you have the other situations where someone pulls the pin out of a grenade and everyone kind of runs around with their heads off,” said Lee Kruter, head of performing credit at GoldenTree, during the Monday panel.

Source: Milken Institute

It’s a thorny issue, and it inspires strong views. As much as you can argue that sponsors are simply doing their duty to LPs by using the docs that their lenders agreed to, perhaps the bigger question is how lenders ended up agreeing to those docs in the first place — and what implications that has for the spirit of credit investing.

“As a credit investor, I expect certain treatment of my credit,” said Ashley Baum, head of special opportunities at Texas Teachers, during that same panel.

“I don’t expect that my managers are going to play against each other, and that my sponsor’s going to be involved in directing flow and fees to certain creditors over other creditors. And I think you fundamentally get to a breakdown in trust.”

You can view a recording of that discussion, which was moderated by 9fin, here. And for a more comprehensive list of recent LMEs and other coverage, check out our weekly US distressed newsletter, The Default Notice.

Securitize all the things

Outside the glittering halls of the Beverly Hilton, sources speaking with 9fin were bemoaning the lack of new M&A deals, which has cut off a key source of deal flow for the fast-growing private credit market.

But while financing LBOs with giant unitranches gets a lot of attention, it’s just the tip of the iceberg of private credit (as we’ve noted before). A big chunk of the iceberg below the surface is made up of asset-backed lending: and pretty much every firm we spoke to at Milken this year is obsessed with it.

Whether it’s music rights, student loans, home solar financings, or small business lending, private credit firms are sniffing around pretty much any asset with a cashflow these days, and hoping to securitize it.

What’s the difference between this activity and the deals that go on in the well-established public ABS markets? Maybe not all that much.

“The difference between asset-backed private credit and public ABS is that the private credit version is much less efficient,” said one source (not an ABS banker, we promise!) when we asked that question.

There’s a lot more to be written about this, of course. For one thing, the divisions between public and private markets, and banks and private credit firms, are not as stark as they’re often made out to be; the market will eventually find an equilibrium.

But the hype around asset-backed private credit feels slightly symptomatic of a) the lack of big-ticket M&A deals and b) Wall Street’s penchant for repackaging, rebranding and reselling what is fundamentally the same stuff.

All the asset classes we mentioned above have been securitized before, and will be securitized (and maybe even re-securitized) in the future.

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