Bryan Krug – High Yield Credit Investing [Invest Like the Best, EP.114]

My guest today is Bryan Krug, who manages the Artisan Partners Credit Team and overseas more than $3B in high yield credit investments for the firm. This was my first conversation on high yield, so I took it as an opportunity to get an overview on the investment universe and home in on the tools used for analysis and security selection.

As an equity investor, I think one of the most fruitful areas of research is into ways that companies fail or go wrong, and credit investors focus almost entirely on this potential for impairment. My guess is that all equity investors will learn something useful from this conversation. Please enjoy. 

Show Notes

0:00 – (First Question) – Components of a credit cycle

2:11 – Overview of the high yield debt markets

5:54 – Why should investors consider this investment class

8:00 – How analyzing a company’s debt is different from what equity analysts look for

9:31 – Primary factors when exploring a company’s ability to de-lever

10:32 – What is their alpha vs others in the space

12:51 – Deep dive into the quantitative factors for them to look into a deal

15:14 – Benchmarks he uses

16:57 – Portfolio construction

18:04 – Their preference for broadband providers over cable tv networks

20:50 – What piques his interest about spreads

22:39 – The ratings of debt

26:29 – A recent example of an opportunity and how the mispricing was identified

30:06 – Most valuable data sets in this world

32:40 – Favorite part of this process

33:15 – Most surprising new learning

33:50 Maintaining your advantage

35:38 – The biggest pools of error in this industry

38:49 – What industries interest Bryan

41:39 – Dedication to this market

42:34 – Evolution of his healthy skepticism

43:27 – Can things in the debt market help to project what will happen in the equity markets

45:45 – Current view of the world based on what is happening in the credit markets

46:40 – Categories of convenience that he cares about

50:04 – Anything that has him worried in high yield markets

51:27 – Kindest thing anyone has done for Bryan

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