1. Home
  2. Our Firm
  3. News
  4. Guggenheim Fourth Quarter 2018 High-Yield and Bank Loan Outlook: Strong Earnings Growth Is Masking the Rise in Borrowing Costs

Our Firm

October 15, 2018

Guggenheim Fourth Quarter 2018 High-Yield and Bank Loan Outlook: Strong Earnings Growth Is Masking the Rise in Borrowing Costs

Guggenheim Investments warns that factors that have contributed to strong earnings growth this year will fade in 2019 and turn into headwinds in 2020, leaving heavily leveraged corporate borrowers dangerously exposed.

NEW YORK – Guggenheim Investments, the global asset management and investment advisory business of Guggenheim Partners, today provided its Fourth Quarter 2018 High-Yield and Bank Loan Outlook.

Among the highlights in the 12-page report:

  • With the Federal Reserve now targeting 2.00–2.25 percent on fed funds and more hikes on the way, tightening monetary policy is putting increasing pressure on corporate borrowers’ balance sheets across the leveraged credit landscape
  • Strong earnings growth is masking the rising cost of debt. With earnings expected to peak this year while the Fed forges ahead into restrictive territory, we expect that now is as good as it gets for interest coverage.
  • The cost of debt has been rising for almost every subset of the leveraged credit market, however we estimate that only 30–50 percent of the increase in short-term borrowing costs to date has passed through to the cost of debt for leveraged credit. We expect this passthrough to increase over the next 12 months as the Fed raises rates.
  • Strong earnings growth, healthy interest coverage, and easy access to financing leads us to expect default volume will remain low over the next 12 months, but the tide will start to turn in 2019.
  • Credit spreads tend to widen a year in advance of a recession, based on our analysis of the past three cycles. Now is the time to take advantage of exuberant markets to move up in quality and position for the recession in early 2020.

For more information, please visit www.guggenheiminvestments.com.


About Guggenheim Investments

Guggenheim Investments is the global asset management and investment advisory division of Guggenheim Partners, with more than $208 billion¹ in assets across fixed income, equity, and alternative strategies. We focus on the return and risk needs of insurance companies, corporate and public pension funds, sovereign wealth funds, endowments and foundations, consultants, wealth managers, and high-net-worth investors. Our 300+ investment professionals perform rigorous research to understand market trends and identify undervalued opportunities in areas that are often complex and underfollowed. This approach to investment management has enabled us to deliver innovative strategies providing diversification opportunities and attractive long-term results.

 

Media Contact

Gerard Carney
Guggenheim Partners
310.871.9208
Gerard.Carney@guggenheimpartners.com

 

1Guggenheim Investments total asset figure is as of 6.30.2018. The assets include leverage of $11.7bn for assets under management. Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Real Estate, LLC, GS GAMMA Advisors, LLC, Guggenheim Partners Europe Limited, and Guggenheim Partners India Management.

Investing involves risk, including the possible loss of principal. Investments in fixed-income instruments are subject to the possibility that interest rates could rise, causing their value to decline. High-yield and unrated debt securities are at a greater risk of default than investment grade bonds and may be less liquid, which may increase volatility.

This material is distributed or presented for informational or educational purposes only and should not be considered a recommendation of any particular security, strategy or investment product, or as investing advice of any kind. This material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. The content contained herein is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation.

This material contains opinions of the author, but not necessarily those of Guggenheim Partners, LLC or its subsidiaries. The opinions contained herein are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. No part of this material may be reproduced or referred to in any form, without express written permission of Guggenheim Partners, LLC.



November 15, 2018

Glen Santangelo to Join Guggenheim Securities as Healthcare Analyst

Guggenheim Securities, the investment banking and capital markets division of Guggenheim Partners, announced today that Glen Santangelo will join the firm in January as a Managing Director in a planned expansion of the firm’s Healthcare Research team. Mr. Santangelo will focus on the coverage of Healthcare IT and Distribution companies in close collaboration with the growing therapeutics and services team.

Read More

October 15, 2018

Guggenheim Partners Selects Second Cohort of Network for Social Innovation

NEW YORK - Guggenheim Partners is proud to announce the selection of four non-profit organizations for the second cohort of the Network for Social Innovation. The Network for Social Innovation is a Corporate Social Responsibility venture strategy that identifies promising, early-stage organizations using innovative solutions to solve enduring social problems. It recently won WealthManagement.com’s “Corporate Social Responsibility/Diversity” Award for an Asset Manager.

Read More



© 2018 Guggenheim Partners, LLC. All rights reserved. Guggenheim, Guggenheim Partners and Innovative Solutions. Enduring Values. are registered trademarks of Guggenheim Capital, LLC.