The Charging Bull or Wall Street Bull is pictured in the Manhattan borough of New York City, New York, U.S., January 16, 2019. REUTERS
April 10 (Reuters) – S&P Dow Jones Indices is launching a new credit-default swap index linked to the private credit market, giving investors a tool to bet against a sector that has faced turbulence in the last few months.
The CDX Financials index includes a broad range of 25 North American financial entities, spanning banks, insurers, real estate investment trusts and business development companies (BDCs).
Credit default swaps are derivatives that offer insurance against the risk of a bond issuer – such as a company, a bank or a sovereign government – not repaying their creditors.
The new index arrives as private credit funds face their most serious stress test since the sector’s rapid expansion following the 2008 financial crisis.
“This index evolved through feedback with various market participants, including the several dealers who plan on providing liquidity and various end users,” said Nicholas Godec, head of fixed income tradables & commodities at S&P Dow Jones Indices.
“One exciting feature of the new index is that it is the first instance of CDS linked to BDCs, thereby providing CDS linked to the private credit market.”
The pace at which investors are demanding money back from non-traded private credit funds has accelerated in recent months on fears that artificial intelligence will upend software businesses financed by them.
Apollo Debt Solutions, Ares Capital and the biggest non-traded BDC, Blackstone Private Credit Fund, will together comprise 12% of the equally weighted index.
Major banks, including Bank of America, Barclays, Deutsche Bank and Goldman Sachs, will start selling the derivatives next week, with more lenders possibly to come, the Wall Street Journal reported earlier on Friday, citing people familiar with the matter.
Reuters reported last month that Goldman Sachs was pitching hedge funds a financial product that allows them to take a short or long position on corporate loans, citing a source familiar with the matter.
Reporting by Pragyan Kalita in Bengaluru and Saeed Azhar in New York