Debt Capital Markets

A deep dive into financing in Latin America

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Amaury Guzman: Hello and welcome to ‘What's the Deal?’ on J.P. Morgan's Making Sense. I'm your host Amaury Guzman from the Leveraged Finance Desk. With us here today, I have Lisandro Miguens, a Managing Director at J.P. Morgan, and the head of the Latin American Debt Capital Markets Desk. Liso, thank you for joining us today.

Lisandro Miguens: Amaury, thank you for having me. It's a pleasure.

Amaury Guzman: So let's start from the top with the fundamentals. For the benefit of our listeners who may not be familiar with the funding dynamics in the region, can you explain what debt capital markets entails in Latin America?

Lisandro Miguens: Sure. The way I like to describe it, particularly for your audience, is to look at the similarities and the differences with the U.S. market. So in terms of the similarities, we still have a bond market and a loan market, similar to you. The bond market is characterized mostly by 144A, traditional 144A issuers, who have a certain issuers doing SEC register. And then we have two niche markets, which are smaller in size than the traditional, which are the private placement and the asset-backed securities. Then, moving on to the loan market, the loan market is mainly the borrowers are concentrated and in TLA (Term Loan A) and RCF (Revolving Credit Facility), which is like 90% of the market. And then the rest is direct lending, or have some direct lending, what we call it alternative financing in Latin America. That is a growing market that has been growing over the years, but still is very small. And in terms of the TLB, which is a very deep market in the U.S., we don't have that in Latin America. Some borrowers in the TLB, there's a few borrowers, like three or four only, which are names that are very related to the high-yield market, either by ownership or they have some assets in the U.S., but it's a very niche, small market. When you look at the differences, the differences are also big. In the sense that, for example, we have in Latin America, an international capital markets and a local markets. What does that mean? When I say local markets, I mean local denominated securities in the currency of the own country, local listing, local law, local investors – pure local markets. Interestingly enough, that market is two times larger than the international capital markets for Latin American issuers. So at the end of the day, 70% of all financing in Latin America is done in the local markets, and only 30% of the financing is the one that is done in the international capital markets. The local markets are dominated by local players, local banks, and international capital markets are dominated by companies or banks like J.P. Morgan. The second difference is the penetration and the size. So when you think about penetration of the financing market in the U.S., all the financing markets in the U.S., or capital markets in the U.S., comprise 170% of the GDP of the U.S. While if you look in Latin America, it's only 60%. So clearly there is a big difference between how much penetrated is the capital markets in North America than in LatAm. And then the size, the sheer size of the U.S. market is 10 times larger than the one in Latin America. So the total capital markets in the U.S. is $50-trillion, while the capital market size in Latin America is only $4-trillion. And then the last one, difference, is market sentiment. The market sentiment in Latin America is not only driven by the U.S. capital markets, U.S. rates, which we'll talk about in the rest of the podcast, but also is driven by idiosyncratic events in Latin America, FX currencies, current account deficits, political cycles in Latin America, commodity prices. So at the end of the day, when you look about market sentiment for an issuer in Latin America, borrower in Latin America, you need to think about what's going on in the U.S. but also all these factors affecting the Latin American space.

Amaury Guzman: Thank you for that, Liso. I think this compare and contrast that you've done vis-a-vis the U.S. market versus the dynamics, the products that we see in the Latin American market is very helpful for our listeners. Just double clicking a little bit into the products that are employed for capital raising in Latin America, why don't we start with international bonds, and the drivers to the segment of the market.

Lisandro Miguens: Sure. So basically, as I said before, the international capital markets is a complement to the local market. So when you look at the local capital markets, you have 80% of the financing for sovereigns, the local market is 80% sovereigns and 20% corporates. So most of the sovereigns are financing themselves in the local markets. And in international capital markets is 60% sovereigns, 40% corporates. So when you think about international capital markets for LatAm, it is still mainly focused on the sovereign side, but still 40% is corporates. Use of proceeds are usually large investments, re-fi of existing debt, in the case of the sovereigns managing the budget, which all the countries have fiscal deficits, so they need to manage that. And then in general corporate purposes. When you think about the high yield and high-grade component, in the high grade, is usually senior and secure. You have also subordinary structures that allow issuers to go to market with hybrid securities and A21s, in the case of banks. In the case of high-yield, you have senior and secure financings, and you have two types of high-yield different from the U.S. The first type is a typical that the U.S. are used to, which is the capital structure of the company, is such that it is a high-yield issuer, and has high-yield components in terms of indenture, governance, etc. But then you have a sub-segment which is top companies, which has an investment-grade capital structure, but happens to be in a country that is non-investment grade. And those are non-investment-grade issuers, but the way that they're being treated by the market is more like an investment grade, even though it's a non-investment-grade rating because of the country.

Amaury Guzman: That’s very interesting. And I just want to make a pause in this point you just mentioned. Here in the U.S., we're used to having very deep investment grade and high-yield market. But you're saying that in LatAm, or in Latin America, we could have a company with an investment-grade credit profile yet, just because of its jurisdiction where it's based, it could be rated by the agencies as a high-yield instrument. Is that right?

Lisandro Miguens: Correct. Yeah, that's right. When you looked at that instrument, at the end of the day, it's going to be an instrument that look like more like an investment grade in terms of the governance, in terms of the indenture. Why? Because when you looked at the company, isolated from the zip code, it is an investment-grade type of company. So the indenture will be such that will equal an investment-grade indenture.

Amaury Guzman: Got it. You also mentioned that in Latin America, issuers employ what the market calls hybrid bonds. It's an instrument that we don't typically see in the U.S., I think we more often see preferred securities for funding at that part of the capital structure. Do you mind just fleshing out in a little bit more detail what hybrid bonds are?

Lisandro Miguens: Yeah, sure. So hybrid bonds are highly subordinated debt instruments, like quasi-equity, that has certain features that make them like that. One is the long tenure, or the perpetual maturity. The second aspect is it has to be so deep subordinated on top of the equity, below all the rest of the debt. And last but not least, is the discretionary to pay coupons. So, those three elements make that hybrid security such that can be treated by rating agencies and sometime accounting purposes as partly equity. We've been using this instrument, like in the U.S., in high grade market as well, in Europe has been highly used. Also in Latin America for companies that they basically, they've been used in the context of M&A, that they need to put more capital, because they're going through an M&A process and they need more capital to retain the ratings. Sometimes for reasons of high leverage, because of the cycle. Remember that in Latin America, we have a lot of commodity companies. Commodity companies are very cyclical in terms of the revenues, and sometimes in the low part of the cycle, they need some cushion of equity. And so they use this instrument to basically support the low cycle of those companies.

Amaury Guzman: Got it. I know we’re to try to zoom out a little bit, and break down the volume in the market, as of most recently in terms of industries, how would you describe that?

Lisandro Miguens: So, when you think about the market, you have the bond market and the loan market. Loan market, there's no data that we can tell you where the industries of the issuers are coming from. But I would say that mimics the bond market. So if I take the bond market capitalization of Latin America, you're going to see a very fragmented, and at the same time, diverse industries represented in the indices. And we'll talk about the indices later. And it's very interesting, because if you looked at the break up, you're going to see that 20% of the issuers come from financial institutions, 20% from energy, 15% from utilities, and 10% from three different sectors, 10% each: mining, consumer, telecom. And then other industries: pharma, agribusiness, transportation make up the 15% remaining. So, it's very diverse, given the sense that most of the industries have access to the markets, not only the more strategic ones. I mean, we can think about commodity cycle or commodity-driven because of the force of the strength of the commodities in Latin America, or you can think about basic infrastructure for the good for the country, but also the other more marginal industries have access to the capital markets.

Amaury Guzman: Yeah, that's clear from that breakdown. Pivoting away, in terms of tracking the market, I know that for instance, in my day-to-day job on the leverage finance desk, I observe the high-yield index, the leverage loan index, and I point my clients and as well as investors and lenders towards that to try to get a sense of relative performance. What typical benchmarks do you observe to assess the performance of the asset class within Latin America?

Lisandro Miguens: Basically we have two, and both are within the families of indices of J.P. Morgan. One is the EMBI, and the second one is the CEMBI. The EMBI is the one that comprises all the sovereign issuers and quasi-sovereigns. I mean all these companies that they are basically partly or totally owned by governments. And then you have the CEMBI, which is the corporate index. In order to be part of the EMBI, you need to have an issuance at the minimum of $500-million and certain liquidity in the secondary market. And in order to be on the CEMBI, you need to have a minimum of $300-million, and also certain amount of minimum liquidity required. I don't think there are any other indices in Latin America that try to compete with these two. And this is widely used in the industry.

Amaury Guzman: I know that we've, so far, spent a lot of time diving deep into the intricacies of the bond market, but I now want to pivot into loans. Why don't you kind of walk us through the role that loans play in financing in Latin America?

Lisandro Miguens: Perfect. So first and foremost, if you think about size, just to give an idea the size of the loan versus the bond market in LatAm, the loan market is only 25% of bond market, international bond market in LatAm. So it's, the market cap of the loan market is around $300-billion, while the bond market is $1.2-trillion. Then the second is, most of the syndicated loans are New York law. And basically you have mostly international banks participating, but also you have some local banks participating, because some local banks have funding in dollars, so they use those deposits to participate, but like more marginal. Obviously the syndicated loan market is an additional source of financing to the local markets and to international capital markets. Those three groups of financings are the ones that they make up the majority of the financing for companies in the region. Most of the participant banks are international banks that we all know. I mean, in the U.S. are going to be the typical U.S. banks. You want to have the French banks very active. You have Italian banks, Spanish banks, super active in Latin America, obviously. The Netherlands. Also you have Middle East banks and Asian banks. And on top of that, regional banks who have some regional banks in Latin America, they have a regional presence, and they like to participate in some of these loans. So, it is really widely distributed between the different banks. It is a relationship lending, TLA. Pricing tend to be very aggressive. Particularly below the bond market. That's why the clients like this market a lot. When you think about sizes as well, we issue around between $50 and $75-billion of loans per year. The tenures are between three and five years, amortizing, some of them balloon payments. And then you have the sub-segment that I talked about with you before, which is the project finance and the alternative financing. Typically in project finance, greenfield and brownfield projects in Latin America, or companies that they have highly contracted cash flows. And then they can go to seven years. Mini-perm in that market is very common, so they go further than five years, and usually it's amortizing. Then, in terms of the alternative financing, which is more niche market for solutions that are not driven by a traditional syndicated loan market, that is a growing market as I said before, don't have a size per se, because it's very private, difficult to measure the size. But you can see around five to 10 deals, per year in the region.

Amaury Guzman: Got it. Thank you for that. It sounds like you guys have been very active in the sector and you employ some of the features that we use here in the U.S., in terms of kind of the loan market for being able to originate financing for borrowers in the region, but then perhaps other kind of shy away from other features, just kind of to cater to the bespoke needs of the borrowers down there. We've been very busy here in the U.S. over the last couple of years with financing in the market, specifically in high-yield, which is where I kind of spend most of my time. Can we now pivot to speaking to the drivers to primary activity in the market and the depth of demand for both bonds and loans across the region?

Lisandro Miguens: Great. So, the yearly volumes in the bond market ranges between $70-billion and $150-billion. $70-billion was a low mark in 2022, as we all know what happened in the markets that year. And $150-billion is a high mark that we saw last year in 2024. So far this year, we printed in six months, $100-billion. So, we are basically tracking a number that can end up being a record volume of issuance on a historical basis. When you think about how deep that market can be in terms of how much you can raise being an issuer in that market, you can raise between $500-million or $300-million and $2-billion. I think the highest market that we've seen for corporates in the region has been $2-billion. You can go from 10 to 30 years, no problem. In the local markets, the tenures are shorter, five to seven, we tend to use in the international capital markets more for the 10 to 30 year mark, even though we can do five years, no problem. When you looked at the local markets, it is not as deep as in the international capital markets. So issuance in the local markets goes from $50-million to $500. More than $500-million in the local markets feels like that is a lot. So you need to move to the international capital markets for size, and tenures are five to seven years, the sweet spot. You have sometimes 10 years or longer, but most of the issuance happens between five and 10 years and seven years. When you think about the split between countries. Like the two big countries, Brazil and Mexico, they represent 50% of the issuance. When go to the Andean region, we call it the Andean region, Colombia, Peru, and Chile, represent 30% of the issuance. And then the small countries represent 20. And the small countries are countries that you don't have on the radar: Dominican Republic, Guatemala, Panama, Costa Rica, El Salvador. Those count for 20% of the issuance, which is because they don't have local markets in those countries, they tend to every big issuance, they don't go to the loan market, goes to the international capital markets. So we don't have in the small countries, the local markets comparison, or competition to the international capital markets. That's why they represent, even though they're small countries, a good chunk of the issuance, per year.

Amaury Guzman: It's quite interesting what you mentioned about the larger countries or economies having the option of deciding between the local market and international market in order to cover their financing needs, whereas the smaller countries only having the international market as their funding source. Now that we've covered that, can you speak a little bit about the windows of opportunity that the borrowers in the regions have, how they act as a market and as well as, how people think about pricing the credit risk in the region?

Lisandro Miguens: Yeah. So when you think about windows of opportunity, you need to qualify by the type of sources of funding. So we talked about local markets, syndicated loan and bonds, international bonds. So local markets is always open. It is a traditional financing source for these companies, is local currency, is all local investors, they know those companies very well. Interestingly, that market is such that moves from fixed income to equities. So you have migration from fixed income to equities. That market suffers in the fixed income side, suffers when the equity market is booming. And there's a lot of opportunities because the assets under management migrate to the equity side, which is not what happened in the U.S. So that's one of the effects. But usually it's always open at very good levels. The syndicated loan market is also always open because it's basically two things. One is relationship lending, and second is the largest companies in the region, the best credits in the region. It's highly concentrated on high grade. Because of those two factors, even in 2022, for example, when the international capital market was going through tough times, the syndicated loan market was wide open. In the case of the bond side, the windows are not as clear as in the U.S. because you basically are correlated to do two main factors. One is what's going on in the U.S. capital markets, particularly U.S. rates. We are highly correlated to U.S. rates. And second is all the idiosyncratic events that I described before that, that happen in Latin America from political cycle to effects volatility to commodity prices, et cetera, et cetera. So you need to put the two together to start finding windows. Still, we have a ton of windows during the year, but not as many as a high-grade issuer would have in the U.S. When you think about pricing, I think that a couple of interesting factors here. Number one is that when you compare a similarly rated company in the U.S. with a similarly rated company in Latin America, they usually in the investment-grade land, they trade around 75-basis points wider in LatAm than the similarly rated peer in the U.S. Today we're at 60-basis points, but usually the average for the last five years has been 75-basis points. When you go to high-yield is a hundred basis points the average and today we're at 75-basis points. So clearly Latin America pays a premium over what the similarly rated company pays in the U.S., and that creates the crossover demand. Sometimes when the markets are really good in the U.S., what the U.S. investors that invest in the U.S., capital markets, they do crossover investments into Latin America picking up in some of those names that they can give them more yield with the same rating.

Amaury Guzman: Thank you for that. It sounds like it's a good time to be accessing the markets 'cause relative to where they would price vis-a-vis a U.S. credit, the pickup today is not as much as they would pay on average over time. Can you quickly walk us through what the current market conditions are in Latin America? How would you describe market conditions for financing right now?

Lisandro Miguens: Couldn't be better. Because if you, you have these three factors combined right now, number one is, basically the resiliency of economy in both in the U.S. and in Latin America, given what's going on globally. Number two is that the prevailing low spreads, we are probably only 30-basis points away from the lowest spreads in the last 30 years in LatAm. And number three is a strong technical position that we have. So let's go one by one. Number one is the resiliency. So we had a lot of news coming from the trade side, uncertainties coming from that, plus all the geopolitical uncertainties as well. So when you put all of those together and you see how the economy is performing, both the U.S. and Latin America is extremely resilient, and that is creating some confidence factor into the investor base about how we can navigate these periods of uncertainties that we are exploring right now. Number two is preventing low spreads. I mean, we are a very low spreads in the market, and that creates the incentive for the issuers and borrowers to basically print. So you need two to tango, and sometimes you need a combination of good factors in terms of cost of financing and liquidity to have a large volume of issuers. Otherwise, we have what happened in 2022 that the yields were too high, investors were willing to put money to work, but nobody in the issuer side or borrower side was willing to print, because they have other alternatives. As we said before, the Latin American companies, they have alternatives in the local markets and other sources of financing. Then the third thing is strong technicals. Latin America has been net financing negative for the last four years. What does that mean? If you start putting everything that is issued per year, minus the coupon pay, minus the tender offers, and minus the amortizations, for the last four years, the asset class, Latin America corporate bond has been giving money back to investors in the order of around $55-billion. So that technical position is such that investors have been shrinking the asset class, having less exposure to the region, and again, that is creating the technical positive to be willing to put more money to work.

Amaury Guzman: Thank you for that. Clearly, you can’t beat those conditions. It’s effectively the call to action for folks with responsibility to raise funding in the market. Now, if you were to give them a word of advice for the rest of the year, as they monitor and navigate market conditions, what would you suggest for them to keep an eye out, or kind of what keeps you up at night as you monitor market conditions?

Lisandro Miguens: So obviously, when you are in a market that is strong and, with very high valuations, which means very low spreads, you don't have much room to improve. So at the same time, if you look forward, you see a lot of uncertainties in the global economy. You see geopolitical risks out there that are very high. You see fiscal deficits around the world that are unsustainable, that can create a slowdown in the economy around the world. So you have so many factors of risk out there that have not been priced in the market today, and you are almost priced to perfection. And usually the issuers or borrowers in Latin America they are always asking the same is, "Shall I wait for the treasury cycle or the interest rate cycle in the U.S. to start slowing down so I have a better yield?" And they always want to basically tap the market in the perfect moment. But I think that there is a lot of risk out there to be taking that risk. And the market is liquid enough right now. This is one idiosyncratic trend that happen is happening in Latin America. I think that Latin American economies, they have something to win from the de-globalization of the world economy, by being a good proximity to the U.S. and being a good friend and partner of the U.S., and being the U.S. the largest consumer country in the world. We have a lot to benefit from that de-globalization process, which hopefully the countries will proactively take advantage of. Number two is that we are in the middle of a political cycle in, or political elections in Latin America. So in 2026 will be marked by presidential elections in Colombia, Chile, Brazil, and Peru. the people are expecting those elections will go to the more market- friendly, business-market-friendly, government. So that can be a good cycle for business for Latin America in the years to come.

Amaury Guzman: Liso, thank you so much for such an interesting conversation. I'm sure our listeners will find it fascinating.

Lisandro Miguens: Amaury, thank you very much. It has been a pleasure, and let's do it again.

Amaury Guzman: Absolutely. And thank you to our listeners for tuning into another episode of ‘What's the Deal?’ We hope you enjoyed this conversation. I am Amaury Guzman until next time.

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© 2025 JPMorgan Chase & Company. All rights reserved.

[End of episode]

A deep dive into the world of investment-grade private credit

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Christian O'Donnell: Given the favorable demand supply dynamics that we've talked about, and the broader interest in the product on the investor side, we actually feel that private markets are not just going to remain very resilient, but arguably more resilient than public markets, especially if we see uncertainty out of Washington or geopolitical tensions, or just broader volatility over the balance of the year.

Emily Dzieciatko: Hi there, and welcome to ‘What's the Deal?’, our series on J.P. Morgan's Making Sense. My name is Emily Dzieciatko from J.P. Morgan's investment grade finance team, and I'm thrilled to be your host today. We're diving into the world of private credit markets, especially focusing on opportunities for IG borrowers. This area has seen incredible growth, especially over the last year or two, and we wanted to dive in and explore a little bit more on why. So joining me today is Christian O'Donnell, managing director and head of our Debt Solutions group. His team specializes on creating these private credit deals for investment grade clients. Christian, thanks a lot for joining.

Christian O'Donnell: Great to be here, Emily. Thanks for having me.

Emily Dzieciatko: Alright, let's start off with the basics. Can you explain what investment grade private credit actually is and how it differs from the public credit markets?

Christian O'Donnell: Yeah, of course. And maybe just quickly to clear up what could potentially be a source of confusion, private credit, as we all know, is a very broad term. But people tend to typically associate it with core middle market, first lien, senior secured lending. And that's generally a high yield product. For this discussion, I'm going to focus on the narrower subset of the private credit universe, which is rated investment grade. So I just want to make that distinction from the get-go. And incidentally, if people are interested in the sort of, more regular way, term loan B, direct lending private market, our colleagues, Jake Pollock and Lee Price provide an excellent overview of that space in a recent podcast which was released on June 10th. So listeners should certainly tune into that if they’re interested. And you can find a link to that episode in the description of this podcast. But pivoting into what private IG is, I like to explain it through a historical lens. I feel that there's this sort of mistaken perception that private IG is a new or a newer addition to the broader private credit universe, and that's just not true. Private IG has existed for decades, and J.P. Morgan has been a placement agent, a structure, an advisor, and a market leader in that space for decades. And when we look at it historically, private IG was, and it continues to be a financing product that's used by investment grade corporates to get additional flexibility, which the public market may not be able to accommodate for them. We don't need get into the features now, I'm sure we'll come back to it over the course of the podcast, but the punchline is that it's essentially a regular way corporate borrowing tool. In other words, it's issued directly by the corporate, not out of a JV or any boxes and arrows, and it tends to be issued in the traditional private placement market, which if we want to be precise legally, that means that we're issuing it in reliance on section 4A2 of the Securities Act of 1933, which is a fancy way of saying that the securities are not registered with the SEC, they're generally not centrally cleared, and they have trading restrictions or impediments, which makes them less liquid. And so as a result of that, they tend to price at higher yields, anywhere from say, 20 to 40 basis points on average compared to public benchmarks.

Emily Dzieciatko: Got it. Helpful starting point in terms of how we can define investment grade private credit, but how does this historical context actually apply to what we're seeing today?

Christian O'Donnell: Yeah, so it's a good segue. As I said, the starting point is debt issued by corporates, which is a little more customized, issued in 4A2 format, and not very liquid. If we pivot to the more modern version of private IG, I think we can definitively say that over the last three to four years we've seen this very meaningful growth in terms of the scope, the size, and the complexity of the private placement market. And there's a number of reasons as to why. One obvious one of course is that there's a massive need for capital in a variety of different sectors in the United States and globally, like digital infra or technology or AI or energy or manufacturing and a whole host of other areas. And then of course, asset managers are also looking for excess returns. And so this newer vintage of IG private credit elegantly bridges the needs of those two constituents. So on the one hand, we can now offer heavily structured, heavily customized financing solutions at scale, which is very valuable to borrowers. And by the same token, because of that complexity, because of that scale, these private credit deals tend to come at a significant premium. And that's of course, very attractive to investors. And maybe just to contextualize that premium, in many situations, we see it coming at a hundred to 200 basis points higher in yield than what we see in the public bond space.  

Emily Dzieciatko: So you alluded to this already, but what are some of features of these private debt transactions compared to public ones that appeal to borrowers? And also if you could touch on some examples of types of transactions, different themes of those sorts of transactions that we've seen recently.

Christian O'Donnell: Yeah, of course. And so the, the, the many features that we've seen crop up in private credit deals, to give some examples, first of all, delayed draw is a feature which is very popular. It essentially allows borrowers to access funds as and when they're needed as opposed to having to borrow everything upfront. A second feature that's pretty common is amortization schedules that are sculpted, if you will, to better fit the cash flow needs of a particular project. And I think a third theme, which is worth highlighting, is we're seeing increased reliance on rating agencies outside of the big three from a credit ratings perspective. And that's proliferated in particular over the last two, three years. We also typically see unique maturities that are tailored to specific project timelines. And I think we could also add that private credit deals often embed put or call options, or both, which give borrowers more flexibility in terms of how they manage their debt loads. And then lastly, confidentiality is certainly enhanced, for obvious reasons in a private credit deal, and in certain instances, speed of execution. When you put all of those features together, we're able to construct a range of transactions which are very appealing to borrowers. And again, just to give some examples, we're seeing the financing of minority stakes. We're seeing infrastructure and project finance deals. We're seeing the securitization of oil and gas reserves, of royalties. We're seeing stadium financings. I mean, the list goes on and on. And, and I hope what listeners can infer from all this is that it's the versatility of private credit, which makes it such a valuable tool for financing, and thereby obviously giving borrowers the ability to structure deals that better align with their objectives.

Emily Dzieciatko: Maybe we can get a little bit more granular on the second part of your answer. How should companies view investment grade private credit as an opportunity? When and how would it be relevant to them?

Christian O'Donnell: Yeah. And so maybe if we focus more on private debt in its more modern form, which is the more topical one, I'd say that it's particularly useful when companies need a financing solution that doesn't just offer customization, but also more favorable either balance sheet or rating agency or accounting treatment than what you can get with standard debt. So a good example of that is, what we typically refer to as a structured minority equity transaction where a company creates a joint venture, they contribute assets to that JV, they sell a minority stake, or sometimes even a majority stake, and the buyer of that stake finances their investment with private debt. So that de facto capital raise by a borrower can result in, for instance, either full or partial equity credit from their agencies, while at the same time allowing the company to control the assets. And in addition to that, potentially even buy back the stake at a future point in time. And variations of that structure also allow potentially the JV to be entirely de-consolidated from the company's balance sheet, again, while still allowing the company to operate the asset. So these are obviously very valuable features, which are win-win, right? Investors get yielded debt for their credit profile while companies get either cheap equity or arguably more attractive off balance sheet treatment for a given project. So maybe to summarize more generically, I'd say that private credit is particularly compelling or relevant for companies that have large capital needs and or need to finance large-scale infrastructure projects, or in general just need solutions that don't impact the balance sheet or their earnings in the same way that traditional debt might.

Emily Dzieciatko: That certainly all sounds great, but I have to ask, what are the risks? What's the catch? What's the downside to these private credit solutions for borrowers?

Christian O'Donnell: Yeah, of course there's always, there's always a con or a disadvantage. The main, downside is cost generally speaking. Private debt usually, or almost by definition, comes with a higher price, meaning either wider spread or higher coupon than what we see in public transactions. So for companies that are focused purely on price and that don't necessarily need or value customization, then public transactions are probably more suitable, right? And so it's imperative for companies to weigh the pros and the cons and consider their long-term strategic goals when deciding between private and public. And I think this is where we, J.P. Morgan, and this is an important point, where we can guide our clients through that decision process as opposed to pushing a particular product. I would be remiss not to add here, just for the sake of completeness, that private IG can on occasion actually be a cheaper form of capital than public markets, particularly in the context of high yield borrowers who may have specific assets that can be monetized to create an IG rated security. So just to give an example, any cash flows from things like receivables, inventory, software, brands and other IP assets in general, can be particularly interesting from a financing standpoint. So I just want to mention that, but broadly speaking, generally private IG is more expensive than public markets.

Emily Dzieciatko: That's a good segue. Let's dive a little bit deeper there. How does J.P. Morgan fit into this picture?

Christian O'Donnell: Yeah, great question. And, and maybe just to contextualize it a little bit, I think I want to make two key points here. First of all, J.P. Morgan is not a new entrant into this market. We have, as I alluded to before, been a structure placement agent advisor market leader in the private credit space for decades, originally of course in the less complex, regular way corporate private placement deals, but then increasingly in this newer vintage of larger more complex private credit deals. So we obviously bring deep expertise that we can bring to bear in the context of these transactions. The second key point is we are completely product-agnostic. The key mantra for us is to approach every client situation with a solution-focused mindset. So our focus is to consider all the available options that optimizes the outcome for the client. And that can be bonds, that can be loans, that can be hybrids, it can be equity linked, it can be preferred stock and private debt, public debt. It can be anything. What matters to us is that the financing solution meets the needs of our clients. And I think the key point there is that because we approach every situation with that mindset, we can provide impartial advice as to which is the optimal financing tool in a given situation and for a given set of client objectives. And maybe to go into some of the specifics of what we do in a given transaction, first of all, we provide advice in the context of some of the more strategic considerations that tend to crop up in the context of private credit deals. So things like selling stakes and assets, in some instances, selling stakes in core assets. Second, as part of that, we provide structuring expertise in what's obviously, as we've talked about, become an increasingly complex space. Third, we help coordinate the rating agency process, which is integral, I'd say, to the success of most of these transactions. And again, with an increased reliance on some of the smaller agencies. And then lastly, of course, just facilitating execution. And that can be through syndication, but also in certain instances via our balance sheet, again, just to make sure we achieve optimal outcomes. So again, to give a more concrete example in the context of say, a structured minority interest transaction, we fulfill all of those roles. We provide sell-side advisory capability, we provide structuring, balance sheet ratings, advisory advice, and of course, in the context of the financing, ultimately execution expertise, which given the decades that we've been in this space, is unparalleled.

Emily Dzieciatko: Super helpful. Thanks for going through all of those details. Very clear. I think we now have a much better understanding of what IG private credit is, the nuances around it, and how J.P. Morgan can help in the space. But I think it would be helpful if we take a step back and further contextualize how private credit can be used in the current broader macro backdrop of volatility. How does this uncertain macro backdrop impact these private credit markets? And what is your outlook for the private credit market for the rest of the year?

Christian O'Donnell: Yeah, and I think that this speaks to one of the benefits of private credit relative to public markets. Because it's a less liquid and a more bespoke instrument, it tends to be much less directional or, or much less volatile relative to what we sometimes see in either the 144A or SEC-registered space, which in our view are both public markets. So if, just to give an example, if you look in the days and weeks post-liberation day when public markets gapped out 40 basis points, we didn't see any impact on spreads in the private market, nor in, in terms of the broader investor appetite for the product. So in that sense, it can actually even be a reason for a borrower to access that particular market. When dislocations are at their worst in the public space, the private space can be a safe port in the storm, both from a spread perspective and also from an execution certainty standpoint. So I guess if we just extrapolate from there and just given the favorable demand supply dynamics that we've talked about, and the broader interest in the product on the investor side, we actually feel that private markets are not just going to remain very resilient, but arguably more resilient than public markets, especially if we see uncertainty out of Washington or geopolitical tensions, or just broader volatility over the balance of the year.

Emily Dzieciatko: Huh. That's really interesting. You touched on the stability of the market and you started alluding to the investor base and their preference for illiquidity. Could you go in a little bit deeper as far as who the actual investors are in this market and why they prioritize the illiquidity?

Christian O'Donnell: That's a great question, and this is an area where we've seen a tremendous amount of growth. If we look at things historically, it's again, I like to contextualize things historically, investors in the traditional private placement market were predominantly U.S. life insurance companies. And the reason they allocated capital to private credit is they're buy and hold investors, and they look for incremental yield. And so for them, it's a simple asset liability matching game. They write life insurance policies which generate liabilities, and so they seek assets to match them. And once they've acquired those private credit instruments, those bonds are set aside and they're not really impacted by daily mark to markets. Over the last few years, though, we've seen two fundamental shifts in this investor base. The first one is that traditional public investors, both in the U.S. and globally, have identified private credit as a source of alpha, as a source of incremental yield. And so as a result of that, we've seen inflows from that constituency to private credit, and that's been very meaningful. I think a second component of the shift in the investor base, is there's been a significant amount of insurance capital consolidation to third party managers. And so when you compound those two factors, in addition to the fact that traditional insurance communities is also allocating more capital toward private credit, you can clearly see that the market has scaled significantly, which is why borrowers can issue much larger size than maybe what they were able to historically.

Emily Dzieciatko: One last question for you, Christian. How do you see investment grade private capital markets evolving? Do you think that the lines between public and private markets will increasingly blur?

Christian O'Donnell: Both yes and no. Maybe if I list out, some observations in regards to the topic. First of all, private credit has grown significantly and it'll obviously continue to do so. We've talked about how attractive it is for borrowers because of the customization, and it's also attractive for investors given the higher returns. The second point I'd make is that there has been a push for more liquidity in private markets. And in fact, J.P. Morgan has started trading private IG securities recently, but that doesn't detract from the fact that trading is still going to be tricky and more onerous and more logistically challenging. And some investors even told us that they prefer the fact that there's less liquidity in private credit because it reduces asset class volatility. So complete convergence from a liquidity standpoint is very unlikely, in our view. The third point I'd make is that the two markets will definitely continue to coexist, and I definitely think that more borrowers are going to have a footprint in both markets, again, just depending on what their needs are over time. And I guess the last point I'd make is that each market is going to continue to offer unique opportunities. And again, our role in that context is to help clients navigate those options to, again, best achieve their financial objectives.

Emily Dzieciatko: Thank you, Christian. I've certainly learned a lot today. Some really good food for thought. To sum up, investment grade private credit is growing, offers customization and flexibility for borrowers, and J.P. Morgan is leading the charge in helping clients navigate both private and public markets. Thanks again for your time, Christian, and thank you to our listeners for tuning into ‘What's the Deal?’ We hope you enjoyed the insights.

[Music]

Voiceover: Thanks for listening to ‘What’s the Deal?’ If you’ve enjoyed this conversation, we hope you’ll review, rate, and subscribe to J.P. Morgan’s Making Sense to stay on top of the latest industry news and trends, available on Apple Podcasts, Spotify, and YouTube.

This material was prepared by the investment banking group of J.P. Morgan Securities LLC and not the firm's research department. It is for informational purposes only, and is not intended as an offer or solicitation for the purchase, sale, or tender of any financial instrument.

© 2025 JPMorgan Chase & Company. All rights reserved.

[End of episode]

Are conditions favorable for an IPO market boom?

[Music]

Keith Canton: Every company has a story that they want to tell investors. And you need to make sure that you have KPIs that match that story. So if you want the market to evaluate you on a particular metric, let's make sure we take the time that our business is actually tracking to that metric and we're optimizing on that particular metric. And that's really going to, I think, give the buy side a lot of confidence. It's going to match up well with the qualitative story that you're telling. And that's really the way to get rewarded from an evaluation standpoint in the public markets.

Laurel Zhang: Hi, everyone. Welcome to ‘What's the Deal?’, our investment banking series on J.P. Morgan's Making Sense. I'm your host, Laurel Zhang, sitting on our Equity-linked Capital Markets desk. Today, we'll be exploring recent trends in the IPO, follow-on, and convertible markets, uncovering dynamics shaping the markets today. Joining me are my two esteemed colleagues, Keith Canton, who runs our Equity Capital Markets franchise here in the Americas, as well as Gaurav Maria, who runs our Equity-linked Capital Markets business for the Americas. Keith, Gaurav, welcome, and thank you both in advance for the time today.

Keith Canton: Great. Thanks for having us.

Gaurav Maria: Great to be here.

Laurel Zhang: Just to dive in here, Keith, can you just give a quick overview of the recent IPO and follow-on activity year-to-date, and maybe just compare that a bit with, let's say, the activity we saw for last year in 2024?

Keith Canton: Yeah maybe I'll start by just maybe taking a little bit of a step back. I mean, coming off of 20 and 21, where we had enormous IPO volumes, well north of $100 billion a year, we then plummeted to about $7 billion in 22. And we've been slowly fighting our way back. We had about $20 billion in 23, about $33 billion in IPO proceeds raised last year. And so we came into this year with very high expectations.

Laurel Zhang: Yes.

Keith Canton: I think we all thought we'd be north of $50 billion of IPOs in volume on the back of what we thought was going to be deregulation, lower taxes, and a very pro-business environment. And that clearly hasn't materialized to expectations, unfortunately, at least for us. So when we think about where we sit today, the tariff announcements in April really created a sense of uncertainty, and that really slowed down the IPO activity. So we're currently sitting at about $12 billion of IPO proceeds raised year-to-date. Again, that run rate's not going to get you to $50, but we've got a fighting chance to perhaps get close to on par with where we finished last year. So we saw volatility spike. The VIX is how we measure volatility in our market. That jumped to north of 50 in several instances. And for the IPO market, you really want to see sub-20. And we really haven't been back at that level really until the last couple of weeks, which should hopefully bode well for IPO issuance going forward. So we're very much waiting to see on that side. On the follow-on and block activity, that's actually tracking roughly on par with last year's levels. We've had some very large transactions, multi-billion dollar deals. Block activity has been fairly robust. And so we actually have a fairly good window, I think, now to get a lot of issuance out, both for corporates who are thinking about bolstering the balance sheet, thinking about making acquisitions, thinking about supporting growth plans, and then also on the sponsor side, who are really looking to sell secondary positions that they own in public companies as a catalyst to return capital back to the LPs. It feels like we're starting to make progress again in the markets.

Laurel Zhang: Yeah, 100%. There is a lot of room to make up, but it seems like we're headed in the right direction. And then, Gaurav, on the flip side, for the convertible space, based on your view, how has activity been this year versus last year? I'm sure some of that will carry over based on what Keith just described as well.

Gaurav Maria: Yeah, no, exactly. Look, this year we've had about $25 billion of issuance. It is actually quite close to what we did at the same point last year. And our pipeline remains quite robust. I will say 2024 was a record year. We had a very strong second half. I feel quite optimistic that we'll have a pretty good second half this year as well. We've had a little bit of a slowdown in April because of all the tariff-induced volatility. But look, conditions feel quite favorable. So while I can't predict that we'll be exactly at 2024, we certainly should be above historical averages.

Keith Canton: I'm putting that down in the budget right now!

Laurel Zhang: (laughs) Have that down in paper for us. And then, I guess, Gaurav, on that topic for the convert space, given the nature of the product, how have you seen this increased market volatility actually help some of our issuance volume?

Gaurav Maria: That's a great question on volatility. It's somewhat counterintuitive to most other products, those other equity products. So net-net volatility has actually helped us, I would say. You know, greater volatility means better pricing. So like for like, we are actually seeing pricing environment today is better than what it was at the beginning of the year. Terms are visibly improved. We are seeing investor sentiment is actually better as well because investors benefit from higher volatility in their portfolios because they're fundamentally long and they make more money as vol goes up. So look, most investors are up. Demand continues to be extremely robust. So I would say, look, where we sit today, the volatility has certainly helped our product. There is a flip side to it. Volatility also means stock prices tend to go down. And as stock prices go down, that might give issuers pause. But look, we have various tools in the toolbox to address some of those situations and client-specific asks.

Laurel Zhang: Yeah, that makes a lot of sense. And then to your point on more maybe bespoke structures, have you seen any of those emerging trends or issuers using maybe more innovative structures and frameworks to achieve certain goals for the convertibles space?

Gaurav Maria: Absolutely. I would say over the last couple of years, we've had numerous trends and certainly some more which have become more relevant in recent volatile times. The first has been just a general trend towards a net share settled structure, which is more favorable accounting. That accounting change kicked in a couple of years ago. But, you know, recently, we are seeing more share buybacks, so convertible funded buybacks. We are seeing more uses of derivative instruments like capped calls, which help to mitigate dilution. And recently, we've actually started to see more what we call delta placements to manage share price impacts for clients. Overall, I feel as stock prices become more choppier and markets are overall volatile, issuers are certainly more focused on managing dilution, managing the message, and managing stock price impact on that day. I'm pleased to say we've got plenty of tools and most issuers have been able to structure around these transactions.

Laurel Zhang: Yeah, that's great to hear. I think at the core, this is ultimately a structured equity product. And given that nature, we're able to find solutions regardless of some of the choppiness or issues we've come across.

Gaurav Maria: Exactly right.

Laurel Zhang: I think moving quickly to just a sector framework, obviously, much of the issuance, historically speaking, have come from whether that's tech or healthcare, some of these more high growth areas. But in the past year or so, Keith, where have you seen maybe some sector activity on the IPO or follow-on side?

Keith Canton: Yeah, maybe I'll tackle those separately, just given the differences in the market. But when you think about the follow-ons, that's been fairly diverse across sectors. There's an observable market price, investors can take a look at that screen price and then figure out what discount do I need to come in. So we really haven't seen a dramatic slowdown across sectors. Just in the last week, we saw deals in technology, industrials, aerospace and defense, healthcare deal, financial services. So that the follow-on market, I think investors are very comfortable. And the real question is whether or not issuers like their stock price enough to move forward. But investors can put a price on that risk. And so that's been fairly healthy. On the IPO side, that's a different story. IPOs are much harder to price. Those sectors that are not going to be impacted by tariffs, again, think financial services, fintech, some of the software names probably first to think about reopening the market. Those names that are going to be impacted by tariffs and really have to take a step back and see what certainty do I have on my cost structure? What does that mean for my EBITDA levels? That's going to take longer to materialize. So think hardware names, industrial names, consumer names, those who have to kind of really figure out what their supply chain matters. That's going to be, I think, last to come because investors are going to have a harder time, one, understanding the impact and two, how do you price that risk appropriately? So we really do have a bit of a tale of two cities when you think about who can access the follow-on market versus who can access the IPO market today.

Laurel Zhang: Yep, that makes a lot of sense. And then Gaurav, similarly on the convert space, where have most issuance has been coming from? Does it surprise you? Is it more diversified, less diversified than let's say this time last year?

Gaurav Maria: Yeah. I mean, I would say issuance between 24 and 25 is actually broadly similar. It is very diverse. I would certainly make a comparison that five years ago, it was very tech heavy. And I think as a business, we've been very pleased at the diversity that we've seen over the last kind of 18, 24 months. We've had a bunch of old economy sectors like utilities. We've had REITs, real estate, industrial companies access the convertible market in addition to the tech and healthcare, which has always been a large user of the product. But look, we are seeing a little bit more tech in the last 12 months or so as valuations have come back up. But look, on the whole, it's diversified. And I think different issuers are able to access the market at the same time.

Laurel Zhang: Yeah, it's actually, I think very promising to see, right? Even though times are very uncertain, markets are very volatile. Nonetheless, you've seen issuers from a variety of sectors be willing to tap the market today, which is great. And then zooming out a bit to Keith's point earlier on some of the geopolitical tensions, how do you feel like, Keith, that's impacted investor sentiment? What's the latest we're hearing from them?

Keith Canton: Yes, investors are very much trying to digest all the news flow. But I think the news on the China-U.S. tariff pause really, for the first time, shifted investor sentiment to the point where the fear of missing out on deals overweighed some of their concerns around the uncertainty in the broader market. So investors have proven remarkably willing to participate in capital markets activity. They're buying deals. If we get the price right, there's a lot of interest. And they're really viewing the new deal market as really a good source of alpha generation. Deals have generally traded fairly well post-pricing. Just this week, I'd say, this week and last week, we’re going to see probably close to $10 billion of paper price in the equity and equity-linked markets, which is fantastic. We're moving, again, very much in the right direction. That being said, I think investors are still very much disciplined in terms of what they're willing to pay. And so as we sit here, investors have really proven willing to miss deals if they don't think they're getting in at the right entry point. So that's certainly something we keep an eye on. But investor sentiment has actually proven to be more resilient than we would have expected seeing all the volatility.

Laurel Zhang: Yeah, I think that's great to hear. And then, Gar, from the convert perspective, would you say that's similar? Investors are still constructive. Is it even better because of some of the volatility? What's the thinking there?

Gaurav Maria: Yeah, I mean, I would say it's a little bit better than what we see in the straight equity markets because the nature of the product is downside protected and indexed to the upside. So investors enjoy protection on the downside, but can't really enjoy the upside. So yeah, our markets tend to be a little bit more resilient. That said, the impact of volatility, whether it's tariffs or whether it's geopolitics, shows up in stock prices. So going back to my point, some issuers may want to hold back from an issuance point of view, even though investors are ready to deploy capital. So that tends to be the biggest impact. But no, I think on the whole, the convert investor base, the convert market remains strong. In choppier time, we do tend to see long only investors sometimes pull back a little bit more because they're not hedged, but the hedge funds are always there as liquidity providers.

Laurel Zhang: Yeah, 100%. And then to that point, some of the performance we've seen in the secondary market you both already alluded to, it seems decently promising. But how is aftermarket performance really important to our investors and as well as their willingness to participate on future deals?

Keith Canton: You know, getting pricing right, I think is important, obviously, for investors because they want to make a return. And if they do well, you're going to see them continue to have more risk appetite and continue to be willing to deploy capital. But I think a lot of times it's equally important for the issuers or the sellers, if it happens to be a financial sponsor, because you're going to want to return to the market. And so while we were always focused on how do we optimize the price for this particular transaction, we oftentimes want to make sure our issuers or sellers take a little bit of a view that if they need to come back in a reasonably, short period of time, you want to make sure that investors feel really good, that you want to make sure you continue to execute your business, and you want to really feel confident that you're going to continue to have access to capital. So there's really a balancing act that we try to strike between how do we get the best price, the optimal price for our issuer clients, but also you want those deals to work. And I think we've been able to kind of strike a pretty good balance this year. The last 25 follow-ons, which is probably the month of May and maybe late April, you know, those are up about 7%, you know, which feels like a really good balance for both sides. IPOs tend to be a little bit of a mixed bag. I'd say about half of the deals are trading above the IPO price, half are trading below, but the average deal is up about 10%, 11%. So again, still delivering, returns for investors. And you compare that to the S&P, which is effectively flat to slightly down year to date. And so you can see why issuers, you know, want to participate in new issues.

Laurel Zhang: Yeah, that's excellent. That stat is far more positive than I anticipated, to be frank.

Keith Canton: But again, it's still 50-50.

Laurel Zhang That's right.

Keith Canton: So on average feels pretty good. Half the deals are still below IPO price.

Laurel Zhang: That's very true. And then Gaurav, from the convert side, in terms of, I guess, secondary performance, going off that investor sentiment piece, have things been trading fairly promisingly with the increased volatility, or is there some sort of hesitation as well?

Gaurav Maria: No, look, I would say it's been actually quite promising. But I agree with Keith, we always want deals to trade up and investors to make money. And it's a very fine balance to price it just right. So you're not leaving too much money on the table, but also it shouldn't trade below issue price. And I would say we've been quite successful across the street that deals have in general performed, you know, good secondary market performance, just as it leads to better risk appetite. It's kind of a virtuous cycle as deals perform, investors want to buy more. And that always helps our issuers' clients. But look, I would also say volatility in the secondary markets just has helped portfolios. Investors are, you know, long volatility. And as issuance dried up, let's say in the month of April, we did see secondary markets richened, which has helped pricing for new issuers that came to the market in May.

Laurel Zhang: Yeah, 100%. I think zooming a little bit, Keith, just into the IPO preparedness topic specifically, there's obviously a handful of issuers who are now a little bit on pause or hesitant in terms of a 2025 timeline, but looking further ahead into 2026. So at this point, only maybe six or seven months from now, in terms of what areas those issuers can work on to prepare, what are some of the topics that they can be looking at today, even as they look ahead?

Keith Canton: It's a really good question, because we do have a very deep pipeline of IPOs, a lot of whom we thought were going to come to market, you know, in 25. Some of those are going to be very clearly pushed into 26, and we're going to keep a close eye on market conditions. But, you know, the obvious one is execution, right? There is no substitute for just continuing to execute your business quarter after quarter, and that's going to serve you well. But putting that aside, I think two things that I always try to think about. One, do the companies have a really good handle on their ability to predict their business? Do you know what's going to happen in your business? Can you convey that to the market? That's really, really important. We always talk about having a beat-and-raise model when you think about the IPO market, which means investors will have their view as to how you're going to perform quarter in and quarter out, and can you meet those expectations and perhaps even exceed them by a little bit? And to do that, you really need to have a good handle on your business from a predictability standpoint. So that's critical. It's just making sure, you know, companies understand, you know, that part of their business. And then the second one that I always think about, which is maybe a little less obvious, is every company has a story that they want to tell investors. And you need to make sure that you have KPIs that match that story. So if you want the market to evaluate you on a particular metric, let's make sure we take the time that our business is actually tracking to that metric and we're optimizing on that particular metric. And that's really going to, give I think, the buy side a lot of confidence. It's going to match up well with the qualitative story that you're telling. And that's really the way to get rewarded from an evaluation standpoint in the public markets.

Laurel Zhang: Yeah, that's all very helpful. And it's so funny that you talk about predictability, as being one of those key thresholds to meet, especially in today's market. I think that's incredibly difficult, right, because everything is super unpredictable. But it's very sensible that those are some of the areas that folks should be looking at when considering.

Keith Canton: A little easier said than done, but it does pay massive dividends, if you can get it right.

Laurel Zhang: 100% for sure. And then just looking ahead to the second half of the year, as we're sitting here in late Q2, where do you see opportunities for issuers to execute? And more importantly, the harder to answer question, what do we think needs to happen in the broader markets in order to see activity continue to rebound, as well as maybe investors to be of more of a risk-on type of mindset?

Keith Canton: I think we're going to have a fairly active next few weeks. I think we're going to have a pretty good window. I think generally speaking, the headline news flow should be reasonably neutral to positive. Volatility looks like it's largely moderated. And so I think you're going to have a fairly active window. So we expect to see a lot of our clients look to take advantage of that window and issue, you know, particularly on the follow-on side for public companies. As we think about what happens in the back half of the year, I think as you get past June, investors are going to very quickly turn their attention to what are Q2 earnings? You know, were those earnings impacted by tariffs? Have they been impacted by the noise? The Q1 earnings were actually much better than feared, but it didn't really take into account, you know, the tariff news and the tariff calculus. And so I think people are going to very quickly turn their attention to what are they hearing from Q2 guidance? What are they hearing from Q2 results? And what does that mean in the broader context of market evaluations? And so I think those we're really going to focus on. And the key going forward is really do we get any certainty around tariffs and fiscal policy? And if that happens, I think that's going to give both issuers and investors the confidence to price risk, deploy capital, and hopefully we'll see a lot more activity in the market going forward.

Laurel Zhang: Yeah, that makes a lot of sense. And it's very helpful to hear that even despite some of the uncertainty, there's still decent chances of folks, you know, being willing to tap the market during that timeframe. And Gaurav, similarly, from the convert perspective, how is your viewpoint shaping up for the latter half of this year?

Gaurav Maria: Yeah, I mean, look, I would say pipeline is strong and is growing. Dialogue is, you know, pretty high from an issuer point of view. And I think most people do want to tap the market at some point. So we feel generally good about the rest of the year. But in terms of what will help and what will drive issuance, I do think refinancing is going to be a big theme. There's a huge wall of maturities across converts and debt in 2026 and 2027. So a lot of that will start getting refinanced in late 2025 and continue into 2026. So that'll be a big theme. But look, overall, what we would look for is, you know, stable and rising equity prices because share price is a big determinant for when issuers decide to come to the market. You know, a rate cut in second half would certainly be helpful for the right reasons. I would say fears of recession going away and, you know, clarity around tariffs is certainly going to help stock prices and overall sentiment. I also hope there'll be a bit more M&A activity, which will drive equity issuance, whether it is in the follow on markets, but also, you know, one of our products is the mandatory convertible, which, you know, comes in quite handy for M&A financing. So I'm hopeful that will also be the case. And look, we'll always have opportunistic issuers. Despite all the volatility, there are always companies, always sectors, which are outperforming. And we certainly hope we'll see some opportunistic issuance along the way.

Laurel Zhang: Yeah, that's incredibly helpful. I think the theme, it sounds like for the second half of the year is just cautious optimism, if you will, as is with much of our market. But thank you both very much for the time. That concludes today's episode of ‘What's the Deal?’ A big thank you to both Keith and Gaurav for sharing their insights on the current state of the equity capital markets. We hope our listeners found the discussion enlightening and gained a deeper understanding of the opportunities as well as the challenges that lie ahead. Stay tuned for more future episodes as we continue to explore the ever-evolving landscape of finance and investment. I'm your host, Laurel Zhang. Until next time.

Voiceover: Thanks for listening to ‘What’s the Deal?’ If you’ve enjoyed this conversation, we hope you’ll review, rate, and subscribe to J.P. Morgan’s Making Sense to stay on top of the latest industry news and trends, available on Apple Podcasts, Spotify, and YouTube.

This material was prepared by the investment banking group of J.P. Morgan Securities LLC and not the firm's research department. It is for informational purposes only, and is not intended as an offer or solicitation for the purchase, sale, or tender of any financial instrument. © 2025 JPMorgan Chase & Company. All rights reserved.

[End of episode]

Navigating the bank loan market: Trends, volumes, and strategies

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Amaury Guzman: Hello and welcome to What's the Deal? on J.P. Morgan's Making Sense. I'm your host, Amaury Guzman from the Leveraged Finance desk. With us here today I have Patrick Griffin, a managing director at J.P. Morgan and the head of the Pro-rata Debt Capital Markets desk. In this role, Pat helps corporations and private equity firms raise capital in the form of bank loan commitments to revolving credit facilities and term loans that eventually refinance existing indebtedness as well as fund M&A transactions. He's here with us today to give us an update on the latest trends he's seen in this side of the market. Pat, thank you for joining us today.

Patrick Griffin: Thanks Amaury, great to be speaking with you.

Amaury Guzman: That's great, thank you for that. Why don't we jump right in and go through the latest in this part of the market. And you know, we've had a number of guests here on the podcast speak about the latest trends on the institutional debt side of the market over time. An area of the market that we talk about or that we don't talk about as often is the bank loan market, also known as the pro rata market. How would you compare and contrast the bank loan market versus other institutional credit markets?

Patrick Griffin: Sure, obviously most significant is that lenders in the bank loan market are regulated entities with all that comes with that. And given it's a private market, there's less transparency of information versus the public markets, where you're seeing data real-time. I'd say the bank loan market has much less volatility day to day, week to week, month to month. Generally speaking, conditions and changes in bank behavior lag other markets, absent some very significant macro events. And I'd say also extremely important is that the bank loan market is very borrower and lender relationship driven. This impacts and will impact pricing, terms, and market capacity for any individual borrower. It's absolutely not a one-size-fits-all market. Credit facilities are just a small piece of the overall portfolio of products that banks are offering companies. So lender share of wallet is, is very, very important.

Amaury Guzman: I see. This, this last point you mentioned is very important for, for listeners to take into account, that this is a market that is very particularly relationship driven. The chain of events that, that take place between CFO and treasurers and their banking counterparts in the market that eventually leads to a commitment to a pro rata credit facility cannot be underestimated. Now, Pat, how would you describe the profile of the banks that participate in the bank loan market?

Patrick Griffin: Yeah. In terms of participants on any given day, we're working with approximately a hundred banks across investment grade and non-investment grade transactions. If you break that down by deal volume, it's roughly 50% U.S. money center and regionals, 25% European banks, 10% Canadian, 10% Japanese, and then 5% Chinese or other. A number of foreign banks have purchased or invested in U.S. regional banks, which helps lower their funding costs in the U.S., and or builds out their mid-corporate and middle market banking franchises. As relates to the foreign banks, they're generally focused on operating business in home regions in addition to U.S. capital markets opportunities. Each bank has its own preferred sectors, credit profiles, and product offerings. You know, a small number of banks, often more investment banks currently prefer revolvers to term loans. The revolvers being less punitive in their return models. And then the broader institutional credit markets generally prefer term loans, which are more attractive from a return standpoint.

Amaury Guzman: I see. That's a large number of participants, I have to admit. What about volumes? What do those look like?

Patrick Griffin: Yeah, in terms of volumes I'd highlight, again, the statistics for the bank loan market are not as clean as for public markets. So these numbers can always move around a little bit. For investment grade loans overall, first quarter 2025 bank loan volume was 244 billion. It's down roughly 4% versus the first quarter of 2024. This was really driven in large part by declines in M&A and new money financings, which was offset by about a 25% increase in refinancings. March standalone was also down about 4% versus March of 2024, driven by the, by the same factors. And just for some context, total investment grade loan volume was about 1.3 trillion for the full year of 2024. Switching over to the leveraged bank loan side, first quarter volume was 140 billion. That's up about 15% from the first quarter of 24. You know, if you break that down by rating, about 40% double B, about 40% three B and, or lower, and 20% unrated. If you look at use of proceeds, 75% was refinancing, 10% M&A, and 15% other. This volume represented about 27% of the overall leverage loan volume for the quarter. And then for some context, total leverage pro-rata volume was 682 billion for the full year of 2024, which is about a third of total leverage loan volume.

Amaury Guzman: I see. Thank you for that, that was very helpful. Pat, pivoting to conditions, how would you describe the state of the bank loan market in general, and in light of recent news, the higher volatility as well as concerns by market participants for the potential for the U.S. economy to experience at a recession in the near term?

Patrick Griffin: Sure. So, as it relates to recent developments and concerns with tariffs and a potential recession, I'd say the impact of the bank loan market is still playing out. It's early innings, and as we've seen over the past couple of weeks, sentiment can change day to day. But generally speaking, deals are still getting done. We continue to launch new deals. I think going forward the impact will be very much deal by deal, sector by sector. So we'll learn more every day. As I mentioned earlier, the strength of borrowers' relationships with, with their lenders will play a major role in whether deals get done or not and under what terms. Banks are adjusting their credit underwriting standards, haircutting projections to address current challenges in the markets and in the world. You could see in some cases there may lead, this may all lead to internal and/or public ratings downgrades, which is definitely going to impact bank hit rates and return thresholds. We have seen an increase in short-dated term loans and upsized revolvers to boost liquidity and to effectively provide a bridge to institutional executions as the broader markets settle. Again, the bank loan market typically lags, so we'll learn more as things play out.

Amaury Guzman: It seems like the recent increase in volatility has pushed people towards slightly lower duration as well as slightly higher liquidity. If I were to press you into comparing market conditions now versus right before, how would you describe them?

Patrick Griffin: Yeah, I'd say if you rewind to the end of March, bank conditions were and have been strong, continued improvement since 2023 in the regional bank crisis. Hit rates have improved, market capacities increased. Banks are much more on offense. A few general themes we are seeing in the bank loan market, most of these are not new, when assessing market capacity in terms for irregular way of refinancing as well as new money financings. A borrower's existing footprint, bank footprint really matters. Having installed base of commitments to build on is, is very important. We've also seen syndicates become more top-heavy as borrowers try to manage down their number of banks, while pushing their closest relationships to increase commitments. We've also seen a bit of an up-or-out mindset across the market. This meaning banks wanting to up-tier to best position themselves for an increased share of wallet, and where that opportunity is not available, banks are willing to walk. And in situations where there's not a concurrent fee event, borrowers are having to more often pay arrangement fees to top-tier and second-tier banks where historically that has been less the case.

Amaury Guzman: One of the things you mentioned right now was that banks have most recently been on the offensive in terms of capturing new deals. I know that hasn't always been the case. What are the drivers underpinning this increased appetite for risk?

Patrick Griffin: Yeah, I think it's a number of things. Banks are much better capitalized now. The regulatory landscape has become a bit more clear. I'd say also coming out of the regional bank crisis where banks were focused on pruning their loan portfolios of less profitable relationships and in order to preserve capital. As we've heard with first quarter earnings results, banks now realize they need to find growth, including loan growth, which means leaning in a bit more with credit commitments and being a bit more patient as relates to non-credit business from both existing and the new clients. And then less regulatory uncertainty has definitely helped them do that. We've also seen smaller U.S. regionals combining or just generally looking to expand their lending footprint and playing in syndicated deals where they historically have not. This also allows them to diversify their loan portfolios, which are often over-weighted in real estate exposure.

Amaury Guzman: I see. From all of these improvements, Pat, that you've mentioned, banks being better capitalized, having their portfolios in a better position to capture more risk, has any of those improvements or say benefits translated into better terms in terms of structure pricing for clients or anything that you would highlight in terms of the latest behavior there?

Patrick Griffin: Sure. I'd say on the pricing front, you know, as you compare it to the investment grade bond market and the leverage high yield bond and B loan markets, bank loan market pricing is much less volatile and has remained quite steady. For some perspective, the range of drawn spreads across triple B credits has remained roughly 100 to 150 basis points and double B credits at 150 to 200 basis points. As I've said before, this can vary significantly based on a borrower's lender footprint and their share of wallet. And as I also mentioned earlier, the one area where we have seen things go the other way for borrowers is the need to pay arrangement fees when a refinancing or a new money ask is not aligned with a concurrent fee event. We have seen some instances of repricings, particularly for deals that were done in 2023 when the bank loan market was in tough shape and working its way through the regional bank crisis. I'd say it's also really important to note, it's not uncommon that incremental pricing and fees alone will change a bank's decision whether or not to commit to a transaction. Said a little bit differently, credit-only returns may be somewhat attractive, but a bank may need to check the box that they have or will obtain some form of non-credit banking business. I'd also note here that each bank comes with a slightly unique capital returns model, which will drive behavior. Another point I'd make, bank loan market commitment fees have remained relatively stable across investment grade and non-investment grade. And we have seen more of what was historically investment grade style 364-day bridges for non-investment grade borrowers. And on the leverage loan side, it's worth noting that historically, pro-rata spreads have been 50 to 75 basis points inside of B loan spreads. In certain circumstances that's widened a bit given the recent market volatility. And as it relates to structure, facility structures, varies credit to credit. I'd say very high level on the margin, we've seen increased flexibility built into, build into credit agreements.

Amaury Guzman:  Okay. So what it sounds like is that this is a market that hasn't had a blanket approach. It's not one size fits all, and that is very situation-specific in terms of the improvements that clients have been able to achieve in terms of pricing or structure, despite the health of bank's balance sheet that you mentioned, as well as the better position credit portfolios across the street. Pat, something that we've spoken (laughs) about at length here is private credit. It's something that we've been doing ourselves at J.P. Morgan for a long time and it's continuing to deepen, it's embedded the markets. On the back of its growing share of the market, have you seen any impact in the bank loan market as a result of its growth?

Patrick Griffin: Sure. Generally speaking the bank loan market is call it, a single B or equivalent and higher market. As you know, the private credit market is principally a single B equivalent and lower, so higher leverage, higher pricing, longer tenor, more flexible structure than what do we typically see in the bank loan market. So I'd say regular way the markets don't necessarily compete for borrowers and sponsors with very strong lender relationships. The bank loan market can reach credit profiles more suited for the private credit or broadly syndicated market even at tighter pricing than either, albeit with shorter tenor, tighter structures and higher amortization. You know, from a J.P. Morgan perspective, we're kind of agnostic. So what we're showing clients, the menu of alternatives, pro rata, broadly syndicated and private credit and discuss with them the pros and cons of each. And in some cases to provide maximum flexibility we've underwritten transactions for the private credit market, but with the ultimate takeout being the bank loan market or some combination of bank loan market plus other, call it convert or equity.

Amaury Guzman: That makes a lot of sense. It's interesting that they don't necessarily converge and they're actually kind of focused in different kind of rating segments. Pat, if I'm a CFO or a treasurer today needing to refinance or raise new money in the bank loan market in the near term, what insights would you provide to maximize the likelihood of success and an optimal outcome?

Patrick Griffin: Yeah. As I mentioned earlier, the bank loan market is not one size fits all. So, this won't necessarily be the plan for every transaction, but in most instances, the current playbook has been as follows. First J.P. Morgan and our borrower do a deep dive on existing bank relationships, who has what business, who has a strong calling effort, and also identifying where there may be weak links. Second, we've build a timeline which provides a week or so of thorough pre-screening. You know, that's not just a heads-up that a deal is coming. It's providing terms and in non-investment grade situations, a projections model for bankers to, you know, pre-flight with their capital and credit committees to come back with more than just, this sounds good, but with a firm indication that it can work. We take that information, we take that feedback, we construct a final syndication strategy, you modify terms as needed to kind of maximize the likelihood of success. I think we always like to build in a cushion for these syndications. Typically, 25 to 30%, even after receiving early indications, more often than not, we'll experience negative surprises. And we also see quite a bit is borrowers looking to shrink the size of their bank group, and I'd say they should be cautious with that in mind. You can be leaving dollars on the table that you ultimately may need. And then in many cases, we'll see a natural reduction in the number of banks via attrition. And if possible, link bank loan executions to other fee events. When, you know, when that's not possible, consider arrangement fees for top tier or top two tiers to enhance the bank's returns. And that could really be the difference between a successful and an unsuccessful outcome.

Amaury Guzman: Thank you so much for that, Pat. I'm sure that our listeners will find that game plan very useful as they think about potential opportunities in the near term about accessing the bank loan market and kind of putting that into action. Thank you so much for spending the time here with us today. We really appreciate your insights.

Patrick Griffin: Absolutely. Thanks for having me, Amaury.

Amaury Guzman: And thank you to our listeners for tuning into another episode of What's the Deal? We hope you enjoyed this conversation. I am Amaury Guzman. Until next time.

[Music]

Voiceover: Thanks for listening to What’s the Deal?. If you’ve enjoyed this conversation, we hope you’ll review, rate, and subscribe to J.P. Morgan’s Making Sense to stay on top of the latest industry news and trends, available on Apple Podcasts, Spotify, and YouTube.

This material was prepared by the investment banking group of J.P. Morgan Securities LLC and not the firm's research department. It is for informational purposes only, and is not intended as an offer or solicitation for the purchase, sale, or tender of any financial instrument. © 2025 JPMorgan Chase & Company. All rights reserved.

[End of episode]

Navigating volatility: M&A and leveraged capital markets update

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Evan Junek: Hi, you're listening to What's the Deal?, our investment banking series here on J.P. Morgan's Making Sense podcast. I'm your host, Evan Junek, global head of Corporate Finance Advisory at J.P. Morgan. Today I'm joined by Jay Hofmann, head of North American M&A, and Brian Tramontozzi, head of North American Leveraged Finance Capital Markets. Jay and Brian, welcome to the podcast.

Brian Tramontozzi: It's great to be here.

Jay Hofmann: Thanks, Evan.

Evan Junek: Well, we've got a lot to unpack today. We've got universal tariffs in place. We've got 145% tariffs on China. We've got tariffs on steel and aluminum, tariffs on auto and auto parts. We've got equity capital markets, the S&P 500 as of this recording, which is taking place on the 21st of April, down roughly 10% year to date. And we'll talk a little bit more about how the debt capital markets have responded as well. But maybe I'll start with you, Brian, because you're gonna give us the most up-to-date moment to moment view on what the capital markets are thinking. Why don't you unpack for us what's going on in the debt capital markets in your world, from as you see it, with this very volatile and uncertain backdrop?

Brian Tramontozzi: Sure. So I'd say this, markets are behaving very rationally. From prior to the noise at round tariffs to where we are today, the high yield index is only about 75 basis points wider. By comparison, the first 13 days after COVID, the high yield index moved by over 600 basis points. So the market is reacting very passively to the news. Part of the reason for that is that we came into 2025 with record liquidity in high yield, and that hasn't changed. While, yes, we had large outflows during the last two weeks, every month there are sizable inflows from coupon generation into high yield. And in fact, today versus where we started the year, liquidity is arguably higher in the leveraged loan market. Volumes have been subdued, there hasn't been a single deal clear the market in the last two weeks. There are a couple of deals that launched but are on hold until conditions stabilize. And I think primary reason for that is liquidity in the leveraged loan market is not quite as good as we're seeing in the high yield market, and therefore prices haven't yet recovered to the same degree that the high yield market has seen in the last three or four days. But we do believe that that market too is orderly, and therefore, for the right borrower, there would be an ability to get a deal done. It's just at a rate that's elevated from where it would've been three or four weeks ago. Now, there's a third market I want to talk about, which is private credit. And as many know, J.P. Morgan recently increased its private credit platform from $10 billion to $50 billion. And really what we're going to see, if the market's high yield and leveraged loans don't rally back, private credit is gonna be where we see the bulk of, I would suspect, M&A activity to take place over the course of the near future. And in fact, we're already seeing that take place now, and J.P. Morgan is gonna be leading the charge in many of those financings as they get announced.

Evan Junek: Can I ask you to maybe expand a little bit on how investors today are thinking about Treasury rates? I appreciate in your market that's a little bit less of a focus on a day-to-day basis, but one of the topics that's been coming up with clients every day is what's been going on in the Treasury markets, especially on the long end of the curve. We've not seen Treasury rates fall as much as we've historically seen in periods of elevated market uncertainty.

Brian Tramontozzi: So in normal times, Treasuries rally due to flight equality of investors owning the safe and of government securities. That really hasn't happened in this go-around, and I think the reason for that is there's so many uncertainties now pushing on Treasuries, inflation, foreign government, liquidation of potential foreign government, liquidation of Treasuries, heavy supply of Treasuries funding our national deficit, and then finally some technicals around hedge fund unwinds. It's not clear that we will expect to see a rally in Treasuries over the next several days, several weeks. So our market really right now is just trading on spread. And what we're seeing on spread is spreads are holding in quite well, both in loans and high yield. And the direction of spreads is really gonna be a function of any further news around tariffs and the impact on business and economic outlook.

Evan Junek: So maybe shifting over to you, Jay, why don't you talk a little bit about what you're seeing in the M&A environment today. Obviously we've got Brian's perspective, which feels very real time, very much of the moment. M&A is a little bit more sentiment driven, and would love to hear what you're hearing from clients and the kinds of activity you're seeing in the market right now.

Jay Hofmann: Yeah, you bring up a great point, Evan, which is that the M&A market tends to respond to what happens in capital markets on a time lag. And sometimes that time lag is a few weeks, sometimes it's a few months. And that's basically what we're seeing right now. It's quite a bit of a wait and see attitude. And it's not unlike what happened at the beginning of COVID when there was a big discontinuity in obviously the global macroeconomic environment. People didn't really know what was going to happen. And so as a result, they kind of played a game first of thinking week by week, what do I do? If I'm in the middle of a transaction, do I progress it? Well, the answer generally is yes, let's keep going, but let's see what happens week by week. How are the markets doing? What's going on in my own business? What do the prospects look like? On the other hand, it's not a great time to start a transaction. So what we have seen is a lot of folks who might otherwise have been thinking about starting things in mid-April have pushed off that decision-making. They haven't necessarily pushed it off a long time, although it does vary quite a bit by industry and even subsector. But decisions that people may have been thinking about taking in mid-April and now sort of pushed off to early to mid-May. And we'll have to see, when we get there, what people do.

Evan Junek: You mentioned differences between sectors or industries. Any notable commentary in there that'd be more specific?

Jay Hofmann: Yeah, look, not every industry or sector is affected by tariffs in the same way. So the first question that our clients have been asking themselves is, is my business affected by tariffs or the business of the company that I'm thinking about buying? And if the answer to that is no, they have to ask the second-order question, which is, okay, but if all the talk around the potential recession actually comes into play, is my business affected by the recession or recession? What about the target business? Now, not all businesses are equally affected by tariffs nor recession, right? So if you look at things that tend to have heavier services content, which could be potentially in healthcare, they may be more domestic, not cross-border. Again, healthcare services might be a good place to look. Sometimes technology services. There are some consumer product sectors that are not as affected by what happens globally. We seem to see a little bit more continued momentum there. On the other hand, you know, anything that has to do with manufacturing of physical products, and particularly electronics where there's been so much offshoring to Asia and China over the last 30 or 35 years, those are sectors where people, where executives are really questioning whether this is an entire restructuring of the global economy. And if that's your perspective, then obviously your approach is to just sort of stand pat and focus on your own business before you think about the additional risk you might take on in an M&A transaction.

Brian Tramontozzi: And I can add a point there too, so we're seeing something very similar in the high-yield and leverage loan market with lenders pushing their preferences toward defensives and non-economically sensitive sectors. There's an outperformance of double Bs versus triple Cs and an outperformance of defensives versus cyclicals.

Evan Junek: And interestingly enough, as my team has done a lot of work around looking at the impact of tariffs across sectors, both in the equity markets and strategically, I'd say we've seen very much the same thing taking place in the equity markets, which is to say rational. Again, it's hard to kind of step back when you've got so much red on the screen and see the forest from the trees, but when you do dig into it, you do see the traditional sectors, the utilities, the consumer staples. These are sectors that have generally outperformed real estate and other, another sector that's generally outperformed in this environment. I think indicating that as much volatility as we've experienced in recent weeks, it is orderly to some extent and to some extent rational in terms of how investors are operating. Maybe let's talk a little bit about the global dynamic for a second here, because of course, so much of what we're talking about with trade and tariffs impacts the relationship between onshore and offshore U.S. Jay, maybe I'll point to you. I'd say if we were having this conversation three, four, five months ago, we'd be talking about things like relistings, right? This massive wave of capital that continues to find its way into the U.S. Companies looking at everything from separations to carve outs, trying to take advantage of premium valuations in the United States. Has that turned around? Has that reversed? Is this a pause? Too soon to say? What are you seeing?

Jay Hofmann: I, I think the place to start, Evan, is that if we were having this conversation in that timeframe, animal spirits would've been catchphrase, right?

Evan Junek: Yes, animal spirit.

Jay Hofmann: And unfortunately, that's not the catchphrase anymore. And you're right. Historically, the U.S. capital markets have obviously been more highly valuing a lot of different types of companies than foreign markets, particularly Europe. And frankly, you know, year in, year out, more or less, the U.S. M&A market accounts for about two thirds of global volume. So you know, if we sneeze here, other places catch a cold, right? I would say that prior, or in that timeframe that you were talking about, there was definitely a point of view from a lot of European companies. They wanted more U.S. exposure. The point of view is that the U.S. economy was gonna outperform other economies, and that if there were gonna be tariff barriers that were put up, it would be better to own businesses in the U.S. than to try to export into the U.S. I don't think that's the case anymore broadly speaking. We've heard from my colleagues in Europe and from some clients in Europe that they've done a bit of a 180 in terms of wanting to buy businesses in the U.S. right now. And it's not particularly surprising why, right? There's, number one, a lot more uncertainty here about where the economy's going. There's difficult transatlantic political dynamics. And then you put on top of that, there's a point of view that, in Europe, perhaps there'll be some better opportunities if in fact this is gonna lead to more of a reindustrialization of Europe. I would say less impact, to be honest with you, in Asia and Latin America.

Evan Junek: Yeah.

Jay Hofmann: Because the corridors, frankly, are not as active from an M&A standpoint.

Evan Junek: Right. You heard me talk about the S&P 500 being down about 10% year-to-date. Again, this is as of April 21st.

Jay Hofmann: Down two more points this morning.

Evan Junek: Down two more points this morning. If you look at the rest of the world, excluding the U.S.-

Jay Hofmann: Mm-hmm.

Evan Junek: ... markets are up about 6%. So 16 percentage point delta between the U.S. and the rest of the world. That is almost by construction in part due to capital flows out of the U.S. into the rest of the world.

Brian Tramontozzi: Still trading at a much higher premium.

Evan Junek: Yeah, and we still trade at a much higher premium. Some of the fundamentals of the trends that we were talking about just a moment ago, with respect to the bias towards wanting to be in the United States, technically a lot of those fundamentals still exist, still a large PE premium on US companies. The S&P 500, again over roughly 20 times PE right now. Probably a little lower than that as of this morning. But these are still healthy multiples in global terms. But it does seem to be that there is a little bit of a shift taking place. Whether it's in the Treasury market, whether it's in the equity markets, all of these seem to suggest that there is a sell America theme at the moment, and we'll see how long if that persists, or whether that ultimately reverses. I want to shift gears a little bit and talk about private credit. Brian, as you mentioned earlier, we're re-upping our commitment in private credit to $50 billion. Can you talk a little bit about what that really means, what are we're doing in terms of that initiative, and how it's impacting your markets and our strategic dialogue with clients?

Brian Tramontozzi: Sure. So J.P. Morgan has been in the private lending business since 1799 through its predecessors, starting with The Manhattan Company. A few years ago, we created a direct lending business within leverage finance of $10 billion and we've recently announced that we're gonna take that program to $50 billion. When in combination with our co-lenders, that program's roughly $65 billion in size. That makes us one of the large players in that business, and we want to be a leader in everything we do. What we have seen in changing markets, and used 2022 as an example, when the broadly syndicated markets pulled away from underwriting leveraged buyouts, the private credit market was very much open for business and was the source of, in the second half of '22, the majority of financing for M&A. And I would suspect, as we look at market conditions today being uncertain, that the private credit market very well could be the source of the majority of the financing, at least for the foreseeable future until this market volatility subsides.

Jay Hofmann: I agree with Brian. It has been a tremendous lubricant for the M&A market, as you pointed out. I mean, it's just driven a lot more LBO activity that we would've otherwise seen. And I've also gotta thank him and his colleagues for the commitment that they're making and everything they're doing in that market, because, frankly, it's a big differentiator for us. Not just when we're talking to our clients about the solutions we can provide to them, but it gives us differentiated access into the private credit market and how it works to the benefit of everybody.

Evan Junek: Brian talked a little bit about potential outcomes or potential ways in which this market will adapt to the year ahead. Jay, talk to us a little bit about how the M&A market might evolve given this backdrop, or the kinds of conversations or engagement you're having with clients in this uncertain backdrop.

Jay Hofmann: Yeah, that's a great question. I think that what we're gonna see is that the focus on, you know, down the middle of the fairway transactions that have obvious strategic logic, real synergies, real cost takeouts that you can underwrite with your investors and your lenders, those are definitely going to be in vogue, right? And when we're in times like this, it's more difficult for people to pursue transformational deals or things that may be one or two fairways over from their current business. And frankly, what we're seeing from public investors already are messages to that effect, right? There's been a couple of larger deals that have been announced since April 2nd. The ones that have been best received are the ones where people are talking about buying businesses where there's real strategic logic, real synergies, businesses that tend to be less cyclical or volatile, and are financed in such a way where that it doesn't increase the underlying enterprise risk.

Evan Junek: And maybe could I just ask you to expand on that a little bit? 'Cause there's the profile of the deal, which sounds like this is sort of the, it's like the no duh deals that are getting done, for lack of a better term, right? The obvious ones, the things that I think people will cheer and champion that are sort of easy to understand. But maybe talk a little bit about how they're getting done, 'cause I think the other aspect of this, and it ties back to the private credit piece, is there's probably a greater willingness for creativity, would you say?

Jay Hofmann: Absolutely. And you know this because obviously we partner very closely with your team and have worked with them on a couple of recent transactions in the past couple of weeks where we've brought that to the fore. So I think people looking at different mixes of consideration, different ways that they can extract the maximum amount of tax benefits from a particular transaction, ways that they can structure a deal so that payments may be more focused on the achievement of milestones, things like this, they're all gonna be tools that people wanna pull outta that toolbox and use. And so again, I think the complexity for some of these transactions may go up in terms of the way we structure them, even if the underlying profile of them, as you say, are focused more on things that are just obvious deals to people.

Evan Junek: I think we're gonna be on back in sort of a first principles market, right? Scale is gonna be attractive for investors in this kind of uncertain environment. People are gonna be seeking simple stories. So I think you've got trends like corporate clarity that are gonna continue to resonate for folks, and structures like spin-offs where it's at the whim of a management team that isn't requiring another counterparty to potentially transact may be more attractive at the margin. But at the same time, mergers that enhance scale will also be potentially an attractive outcome, especially if it's supporting a balance sheet that is ultimately, quote unquote, "Fortress in nature," over time.

Jay Hofmann: Yeah, and look, our conversation up until now is focused almost entirely on strategics. I think we need to think about financial sponsors as well. Because in environments like this, they tend to be actually a larger proportion of M&A activity. And the U.S., usually financial sponsors account for about 25 to 30% of volume. I suspect it's gonna be more like 30 to 35% this year. There's a lot of tricky things going on in that ecosystem as well that you have to take into account. But particularly as they, number one, seek liquidity, I think they're gonna be looking at a lot more creative structures and creative approaches to monetization that are gonna span markets. It won't just be M&A deals, it'll be all the interesting things in capital markets that happen in Brian's world. And then on top of that, fortune favors the bold with those folks. If we're in an environment where valuations come under a little bit of pressure, there's quite a few who are sitting on a lot of capital and now actually have the license to spend it. So I think you could see a lot more activity in the take private world too.

Brian Tramontozzi: And I'd say one of the criticisms of private credit in the past was the depth of the market. Today, there's at least 5, if not $10 billion of capital available for any given transaction to fund the M&A debt quantum.

Evan Junek: And I think that's an important consideration, right? Not just for those who are inherently going on defense, but there's gonna be a portion of our clients who are absolutely gonna be thinking about this environment as an offensive one, one where they can be opportunistic. And it sounds like, from both of you, we're really well positioned to help them take advantage of that potential.

Jay Hofmann: No, absolutely. And in a volatile environment, we do best and we can help people understand what the art of the possible really is and even push the envelope.

Evan Junek: Maybe just as a final thought here from both of you, any additional comments on the outlook for the rest of 2025 and potentially even going into 2026? I'll start with you, Brian.

Brian Tramontozzi: Yeah, I think the key is in the direction of the economy. The market right now is positioned where current spreads are not necessarily predictive of a recession. If we are heading toward a recession, I think conditions could certainly get more challenged. Spreads would widen, and the availability of capital could become more limited in the broadly syndicated markets. But as I said before, we now have three hats to wear, including private credit, and I think we'll be able to continue to support our clients when they need us most.

Jay Hofmann: Yeah, I think the period of uncertainty is gonna progressively lift as we get through this 90 days of suspension around tariffs, and hopefully with positive news, right? I am more bullish overall, I think, than the popular narrative is around the ability to sustain positive trends in the economy and, therefore, hopefully in my market. And I would also say that in my mind, like the only question out there is you always wonder, is there another shoe that would drop? Because what we haven't seen in this particular set of economic circumstances yet that we've seen sometimes in the past is uncertainty or difficulty in the real economy causing challenges in the financial economy, which then becomes a bit of a self-reinforcing cycle. I think as long as we can avoid that, we'll be in good shape.

Evan Junek: Jay and Brian, thank you so much for joining me today, and thank you to our listeners for tuning in to another episode of What's the Deal?. We hope you found this conversation insightful, and be sure to tune in to our upcoming episodes as we stay up to speed with the markets. I'm your host, Evan Junek, and until next time, goodbye.

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