Corporate Credit
During this period of market dislocation, we believe investors will be amply rewarded for building thoughtful exposure to corporate credit risk. Given the idiosyncratic nature of this asset class, however, rigorous fundamental research and careful security selection are critical.
Gregg Felton, Head of Global Corporate Credit, Goldman Sachs Asset Management
Featured videos
Fixed income investment professionals describe the opportunities that they believe are beginning to emerge in corporate credit sectors that have experienced significant declines over the last 12 - 24 months.
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Corporate Credit Investing - Gregg Felton, Head of Corporate Credit, US & Global Fixed Income, GSAM
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Distressed Credit Investing - David Frechette, Managing Director, US & Global Fixed Income, GSAM
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Credit as a New Asset Class - Jonathan Beinner, CIO, Co-Head, US and Global Fixed Income, GSAM
Publications
A Reference Guide to Corporate Credit [PDF, 427 KB]
April 2009
Goldman Sachs Asset Management
The ongoing crisis in the global economy and financial markets holds critical implications for investors in corporate credit. Risk premiums on corporate bonds and other forms of corporate credit are at levels not seen since the 1930s. These risk premiums reflect not only the deteriorating outlook for corporate profits in today’s economy, but market liquidity and other factors as well.
In this reference guide, our goal is to provide a broad overview of the corporate credit markets. We examine the types of corporate credit risk available to investors, where each type stands in the corporate capital structure, current valuations and risk premiums, what happens in default and bankruptcy, and the implications of investing in credit at today’s discounted valuations.
With Crisis Comes Opportunity: Why Credit Can Outperform [PDF, 619 KB]
March 2009
Owi Ruivivar
US & Global Fixed Income
Goldman Sachs Asset Management
The global financial crisis and the profound economic contraction have caused severe disruptions in the financial markets, taking a brutal toll on virtually all asset classes. The repricing of risk has been especially evident in the equity and credit markets, both of which have suffered precipitous price declines since the start of the crisis in the second quarter of 2007. However, with crisis comes opportunity: corporate credit and equity currently provide investors with substantial compensation for taking risk. In this paper, we demonstrate that credit is cheap relative to equities, and given valuations and the high likelihood of a persistently challenging economic climate, we believe credit should outperform equities over the next few years. We also believe that the implication of this broad portfolio reallocation trend is favorable to all credit sectors, including investment grade, high yield, bank loans, and emerging markets.
Give Credit Its Due [PDF, 244 KB]
March 2009
| Sharmin Mossavar-Rahmani Chief Investment Officer Goldman Sachs Private Wealth Management |
Brett Nelson Vice President Goldman Sachs Private Wealth Management |
One sector where supply and demand imbalances have led to significant cheapening of securities beyond what we believe is warranted by deteriorating economic fundamentals is the corporate credit market. On a relative basis, corporate credit securities have cheapened even more than equities. Valuations have reached such low levels, in fact, that the sector has begun to attract investors outside its traditional universe of buyers. So-called “crossover” buyers are now moving into the corporate credit sector.
We believe this new attention is well-founded. Many subsectors of the credit market are less liquid, less transparent, and generally less understood than equities. All these factors together have created a potential buying opportunity in credit.
The Corporate Credit Markets: Themes for 2009 [PDF, 761 KB]
March 2009
James R. Cielinski, CFA
US & Global Fixed Income
Goldman Sachs Asset Management
Corporate credit valuations enter 2009 at near-record levels. We believe valuations are attractive, although the outlook is clouded by a bleak economic backdrop, rising defaults and a global financial system in the throes of recapitalization. In our view, the tug-of-war between compelling value and weak fundamentals will dominate markets in 2009, but credit should ultimately benefit from the unprecedented level of policy response and expectations of economic stabilization.
Is Credit the New Equity? [PDF, 166 KB]
November 2008
| Scott McDermott Global Investment Strategies Goldman Sachs Asset Management |
Carolyn Tavares Global Investment Strategies Goldman Sachs Asset Management |
Investment Grade Credit Spreads (US), 1925 - Q1 2009
As the chart illustrates, spreads on investment grade corporate debt are currently extremely large relative to historical levels. In 2008, investment grade spreads were, at times, significantly wider than spreads achieved during the Great Depression.
Understanding Credit Spreads
When compared to government bonds, corporate credit securities can potentially offer investors a higher yield to compensate for higher risk, lower liquidity and other factors, such as different tax treatment. This yield premium is also known as the “spread” and is simply the difference between the yield on the corporate security and the yield on a government bond of the same maturity. For example, if the yield on a five-year Treasury note is 5% and the yield on a five-year corporate bond is 6%, the spread is 100 basis points (one basis point is 1/100 of one percent).
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Goldman Sachs does not provide accounting, tax, or legal advice. Notwithstanding anything in this document to the contrary, and except as required to enable compliance with applicable securities law, you may disclose to any person the US federal and state income tax treatment and tax structure of the transaction and all materials of any kind (including tax opinions and other tax analyses) that are provided to you relating to such tax treatment and tax structure, without Goldman Sachs imposing any limitation of any kind. Investors should be aware that a determination of the tax consequences to them should take into account their specific circumstances and that the tax law is subject to change in the future or retroactively and investors are strongly urged to consult with their own tax advisor regarding any potential strategy, investment or transaction.
Unlike corporate credit securities, Government Bonds are guaranteed by the U.S. Government and, if held to maturity, offer a fixed rate of return and fixed principal value. A corporate credit security involves greater risks than government bonds and is subject to the possibility that the issuer of the security will not be able to make principal and interest payments. A corporate bond is not guaranteed or insured by the U.S. Government or its agencies and the bond’s principal value and return will fluctuate with market conditions. Fixed income investing entails credit risk and interest rate risk. When interest rates rise, bond prices generally fall.
THIS MATERIAL DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY JURISDICTION WHERE OR TO ANY PERSON TO WHOM IT WOULD BE UNAUTHORIZED OR UNLAWFUL TO DO SO. Opinions expressed are current opinions as of the date appearing in this material. This information is to be read in conjunction with the linked materials and their relevant disclosures.