Jason Mudrick says almost half the levered credit market is levered at more than 7 times EBITDA (excluding generous addbacks).  “That just doesn’t work in a 12, 13, 14 cost of debt market.”

2/3 of non-investment grade credit is floating rate, so they will feel the pinch in real time.  However, Mr. Mudrick generally expects defaults to be “protracted” in nature, and there won’t be a tsunami wall (except for commercial real estate of which $1.5T is maturing in 3 years).  As most of the loan market is covenant-lite in nature, additional debt can be taken on and even be senior to the prior debt, so this will help extend the default timeline.  This is good news for funds, as it will provide good deal flow for distressed investors over 10 years and not just in the near term.