July 14, 2020
Covid-19 has adversely affected the world’s economy more than any other recent phenomenon.
Though it is still much too early to know how credit markets will be affected, by estimating the vulnerability of each sector, we hope to provide an educated guess as to the outcome.
Our two-part risk assessment allowed us to gauge the vulnerability of direct lending at the onset of Covid, as well as to get a feel for which sectors are most at risk. We find that ex ante risk, represented by credit ratings, is comparable between direct lending, senior-secured loans, and high-yield bonds. While direct lending may exhibit slightly higher risk due to sector exposure, our analysis shows that investors have been paid handsomely to bear this additional risk.