Ancedotal Evidence of Where We are in the Credit Cycle

[jay21]

I spend a lot of time thinking about the credit cycle and worrying about it turning.  I own NICK, which is a (great) subprime auto lender.  Delinquencies have been rising since their post-crisis lows.  Management has said that this is because of increased competition.  America's Car-Mart, another player in the subprime auto space, has noted an increase competition as well.

 

On a blog a follow, Distressed Debt Investing), the author has some concerns as well:

 

"I am definitely not a "perma-bear." But when I look out into the marketplace and see quite a few hold-co PIK toggle dividend deals getting done in drive-by fashion with 8 and 9 handles, it stands to reason that risk isn't being priced correctly in the market place."

 

However, Bernanke notes that lending remains tight at banks.  So, where are we?  I think that cycle could be turning in the sub-prime/non-investment grade market, meanwhile the prime market appears fine.

 

Any thoughts/observations?

[jay21]

I'll bump this because I came across a nice tidbit:

 

Bond covenant quality declines to lowest level since start of index. Our three-month rolling average Covenant Quality Index (CQI) deteriorated in January to 3.89 from 3.79 in December, resuming the erosion in covenant quality for North American high-yield bonds that began last July. Investors are assuming more risk despite less yield, as average spreads to benchmark yields have tightened. The CQI is “weak” on our five-point scale, in which 1.0 represents strong covenant protections and 5.0 the weakest (see CQ Scoring Key in the Appendix). We began tracking the CQI in January 2011.