MetLife’s CIO Urges Caution on Debt for Firms Pursuing Takeovers

(Bloomberg) -- MetLife Inc. Chief Investment Officer Steve Goulart, who oversees almost $600 billion for the insurer as well as outside investors, said he’s becoming cautious on credit markets, especially on firms borrowing aggressively for mergers and acquisitions.

“We probably are avoiding more than not companies that actively are involved in M&A, that have increased their leverage dramatically,” Goulart said in a Bloomberg Television interview from the Milken Institute Global Conference in Beverly Hills, California, that’s airing Wednesday. “Also in the bank loan space, when we see terms and conditions continue to fall away and capital structures that are much more risky, we are staying away from those too.”

Goulart said he’s concerned more broadly about BBB-rated securities with a lot more leverage today than in past years. If those get downgraded during a recession, Goulart said, his company is subject to higher capital charges. Insurers are among the largest buyers of debt.

Issuance of collateralized loan obligations had a record year in 2018, and that’s made bank loans riskier as well, Goulart said.

“The CLO market grown dramatically, and that’s increased the demand for the underlying bank loans that provide the assets for CLOs,” he said. “We’ve seen structures that have terms and conditions that are not as strict as they used to be.”

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