TOPIC • 6 CLAIMS
Credit Cycles
Lending standards, default rates, and how credit availability drives the wider cycle.
HOWARD MARKS/
The direct lending market grew from a niche into a scale that, by his account, could not have been filled by good borrowers alone.
- about $2 trillion of direct loans made over 15 years
- the entire private credit sector was about $150 billion 20 years ago
HOWARD MARKS/
Direct lending carries far heavier software exposure than the public credit markets do, which turns a sector-specific AI shock into a portfolio-level one.
- software is 4-5% of high yield bonds
- 10-15% of broadly syndicated loans
- 20-30% of direct lending
HOWARD MARKS/
Those software borrowers were financed at multiples and leverage that assumed durable growth.
- often acquired at EBITDA multiples of about 20x, with high leverage
HOWARD MARKS/
He discloses Oaktree’s own restraint in the same strategy he is describing, rather than writing from outside it.
- direct lending is less than 15% of Oaktree AUM
- just over $10 billion in public vehicles
HOWARD MARKS/
His concern is located in the financing of the buildout rather than in the equity multiples.
- roughly $5 trillion of data center buildout
- against about $350 billion held collectively by Microsoft, Alphabet, Amazon, Meta and Oracle
HOWARD MARKS/
He argues the prior decade’s benign default experience was an artifact of the rate regime, not a permanent feature of credit.
- high yield defaults averaged 3.6% from 1978 through 2009
- but an unusually low 2.1% from 2010-19
Claims are restated; figures are the authors' own. Each links to the document it came from, which in turn links to the original in full.