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Ryan Daniel

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

Marc Touboul is a partner based in Bain Capital Credit’s London office, focusing on the firm’s European liquid credit strategy. He previously worked at Lehman Brothers and Merrill Lynch.

Marc shares what he learnt from his front-row seat during the 2008 global financial crisis, his outlook for 2024 stressed/distressed investment opportunities and his previous life as a competitive swimmer!

1. You joined Lehman Brothers back in 2008, a tumultuous time for markets to say the least. Are there any lessons that have stuck with you from that period?

It was an experience to live through a bankruptcy from the inside where there's complete uncertainty. Indeed, living through a once-in-a-generation event — and the volatility that came with it — was a career defining moment. I learned along with most investors in finance not to take anything for granted or think any single entity was too big to fail.

Fortunately, I was lucky to be part of the asset management division, which remained functioning and was subsequently spun-off as an independent manager.

Moving from the scale and support of a global investment bank to an eight-man start-up independent business venture was quite a contrast. In addition to dealing with the investment portfolio, we had to set-up an office, manage the transition with investors and develop a strategy to grow the business. This was extremely instructive at this time in my career and gave me exposure to all facets of building an asset management business.

2. Moving to the present day, we'd love to hear your thoughts on private credit and syndicated markets overlapping as they battle for deals in 2024.

It’s important to remember what drove the need for private credit historically. This industry began in the wake of the global financial crisis. Banks pulled back from lending to shore up their balance sheets while businesses desperately needed capital to continue operations, keep people employed, and maintain their role in local communities.

As a result, private credit evolved as an asset class to offer bespoke solutions to issuers that struggled to get bank financing. When public markets are dislocated, private markets can pick up the slack, gaining market share as we saw after the GFC and during 2022 and 2023 when banks pulled back again, this time due to interest rate rises and inflation. This is especially true in the upper-mid and large cap segment of the private credit market.

We're seeing this reverse now with a number of those 2022-2023 unitranches being refinanced in the syndicated market.

But it's not a zero-sum game; there is a market for both products to grow in parallel. Private credit has some further way to grow especially in its core lower-mid cap market where banks are continuing to retrench.

3. Do you think there are types of deals that will continue to prefer private credit, meaning that syndicated markets will have a tougher time winning them back?

History has taught us that tranches below €300m are not the most suited for syndicated markets. They're not liquid enough, so this type of lending is more suited to the private credit industry.

Private credit is a relevant alternative for issuers that have a risk profile, size or complexity that are not well suited to banks or capital markets financing. It can also be a credible solution in situations that require enhanced speed of execution or bespoke ancillary lines such as unfunded capex lines.

4. How do you think the macro outlook is shaping up for 2024?

The 2024 macro outlook is a theme we discuss a lot here at Bain Capital. While the outlook for 2024 is better, we're not expecting a hockey stick recovery.

Our conviction in an upcycle has increased especially in the US where growth continues to beat expectations, pulling the rest of the world up with it. The consensus on 2024 US GDP has upgraded massively from 1.2% year-over-year in January to 2.2%.

In Europe, lead indicators have finally turned up and are surprising the market to the upside. We are facing a setup where European leading indicators (manufacturing orders, sentiment, lending surveys) are very strong versus history, but real industrial output and consumption are yet to catch up. This strength is increasing the risk of a return of inflation and has led to a material reprice of the ECB and Fed rates with the central scenario being firmly in the higher for longer camp despite the ECB recently confirming a June target for a first rate cut.

While higher rates and inflation pose risks of a near-term correction for equities, we think that a cyclical upturn and ample fiscal liquidity will outweigh that pressure from rates in the medium term.

5. And what's your read across from that to distressed investing opportunities in Europe?

Back in 2021 and 2022, everyone was looking at the maturity wall thinking it would initiate a great vintage for distressed lending. But the maturity wall has since melted away. The leveraged loan market has been extremely proactive and successful at managing and refinancing its maturities.

The high yield bond market has not dealt with it in the same way and faces significant maturities in 2025 and 2026 as there is little incentive for those locked in on 3% coupons to pay the alternative multiples of this.

Therefore, while we do expect a similar level of defaults in 2024 to 2023, it will be more weighted towards high yield bond issuers than loan-only issuers which will lead to a stream of stressed/distressed opportunities as opposed to a tsunami.

6. Another thing investors have been patiently waiting for — the return of meaningful LBO activity. In your view, what market shift will bring M&A back in full force?

If you go back to last year and what precluded M&A activity, capital markets remained weak. We saw wide bid-ask spreads with few sellers driving transactions, as most maintained significant liquidity.

Things are now starting to change. Geopolitical risk aside, the macro backdrop is more constructive than a year ago, capital markets are functioning again and the gap between sellers and prospective buyers has reduced.

In the LBO market specifically, more GPs are facing pressure to return capital to LPs. This dynamic will likely drive more secondary buyout activity in the second half of 2024.

In speaking with M&A bankers and PE sponsors, we are hearing that more conglomerates are looking to pursue carve-outs to refocus on their core assets, which could drive new M&A activity in the latter part of 2024 and into 2025.

7. What areas of the European leveraged finance market are exciting you most right now?

We are still very constructive on the bread-and-butter single-B leveraged loan asset class. At more than 8%, all-in yields for the asset class are close to all-time highs, and new structures are more conservative which makes the risk-return profile of the asset class very attractive.

CLO liabilities are also attractive. We’re seeing healthy premiums versus other asset classes with similar risk profiles.

8. Is there anything in your world that needs more attention? Said another way, what do you think the financial press should be spending more time on?

After several years of focus on ESG, we are starting to see real improvements in disclosure and engagement from our issuers especially with regards to climate change commitments. One aspect of ESG we are spending more time on, which we believe shall command more scrutiny, is governance.

When looking at problematic credits over the last couple of years, governance deficiency has often been a common theme whether under the form of aggressive moves such as asset stripping, lack of transparency in disclosure or even fraud in some instances. We are starting to see investors pricing in governance risk in some cases but there is more to do on this topic.

9. We hear you’re a big sports fan and have been since growing up in Paris — tell us more!

I used to be a competitive swimmer, going for two hours every day and smelling like chlorine! I think there are a lot of performance and discipline skills you can relate between finance and sports.

I’ve also taken a big liking to boxing recently as a sport which spans skills like mobility, flexibility, strength and reflexes. I think it's probably the best sport, even though it did cost me a couple of ribs earlier in my life!

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