Educational Alpha Podcast - Episode S3: Conversation with Ruth Yang

Host: Bill Kelly
Guest: Ruth Yang, Managing Director, Global Head of Private Market Analytics, S&P Global Ratings
Release Date: April 23, 2025

1. Introduction and Welcome

Bill Kelly opens the episode by introducing Ruth Yang, highlighting her extensive experience in credit and leveraged finance. He emphasizes the relevance of Ruth's insights on private credit markets and their growing significance in the financial landscape.

Ruth Yang [01:00]: "I share my extensive background in credit and leveraged finance, highlighting my unique perspective on the expansion of private credit markets."

2. Ruth Yang's Background and Career at S&P

Ruth Yang delves into her two-decade-long journey with S&P Global Ratings, detailing her roles and the evolution of her career within the organization. She underscores the stability and supportive environment at S&P, which has allowed her to balance a demanding career with personal responsibilities.

Ruth Yang [02:01]: "I've been with S&P in different roles for over 20 years. My background is entirely credit and credit research, primarily in leveraged finance and broadly syndicated bond markets."

Ruth also shares personal anecdotes about being a working mother and the flexibility S&P offers, enabling her to actively participate in her son's life while pursuing a challenging career.

Ruth Yang [04:38]: "I really do appreciate that S&P has allowed me to have a very challenging, ambitious, engaging career. But I can also have the work-life balance that I really aspire to because I love my son."

3. Overview of the Private Credit Market

a. Market Size and Growth

Ruth provides an in-depth analysis of the private credit market, estimating it to be around $1.7 trillion and projecting its growth to potentially double within three years. She clarifies that private credit primarily involves non-banking funding for corporate borrowers, excluding CLOs, securitizations, and project finance.

Ruth Yang [06:49]: "We estimate based upon Preqin's numbers that there's about $1.7 trillion of private credit outstanding. Private credit refers to the private non-banking funding of corporate borrowers."

b. Rating Coverage in Private Credit

S&P Global Ratings currently covers approximately $800 billion in transactions through credit estimates, out of the total private credit market. Ruth explains that private credit doesn't inherently require ratings, unlike the bond market, but S&P provides valuable insights through its credit estimates.

Ruth Yang [09:17]: "Private credit does not require a rating like the bond market requires a rating. Of the $1.7 trillion, S&P Global Ratings covers about $800 billion through our credit estimates."

4. Documentation and Covenants in Private Credit

A significant portion of the discussion revolves around the quality of documentation and the prevalence of covenant-light agreements in private credit transactions. Ruth contrasts traditional private credit agreements, which maintain robust covenants, with newer, larger transactions that are more likely to feature looser documentation.

Ruth Yang [16:44]: "Covenant light and the looseness of documents are really a problem with the broadly syndicated market. In private credit, especially in direct lending and SME lending, the quality of documentation remains far stronger."

5. Lender-on-Lender Conflicts and Club Deals

Ruth addresses the emerging issue of lender-on-lender conflicts within club deals—where a group of lenders may prioritize their interests over others. She discusses the potential risks associated with such dynamics, especially in the context of increasing default rates and economic downturns.

Ruth Yang [19:26]: "Lender-on-lender violence within a syndicate, where some lenders prime themselves over others, is a growing concern, though currently not widespread."

6. Opacity and Indicators of Market Stress

The conversation shifts to the inherent opacity of private markets and how certain indicators, such as the performance of Business Development Companies (BDCs), can signal underlying stress. Ruth highlights the importance of rating structures to provide clarity and assess the risk within these opaque environments.

Ruth Yang [22:50]: "Rating BDCs involves assessing the structure rather than individual assets, providing a clear line of sight into the risk for investors."

7. The Role of Rating Agencies

Ruth emphasizes the critical role rating agencies like S&P play in both private and public markets. She asserts that ratings provide a consistent benchmark for assessing risk, irrespective of the market's transparency or complexity.

Ruth Yang [31:03]: "Our role remains the same—we provide a clear line of sight into the risk of investment, whether it's public or private. A double B is a double B to us, consistently across all markets."

8. Thought Leadership and Current Focus Areas

Ruth outlines S&P's current thought leadership initiatives, focusing on macroeconomic headwinds affecting credit markets, such as tariff policies and the transition to higher funding costs. She underscores the increasing risk of defaults as the market navigates these challenges.

Ruth Yang [36:26]: "We are very focused on the macro headwinds facing credit markets, including tariff policies and the transition to a structurally higher cost of funding."

9. Impact of Generative AI on Rating Processes

The integration of generative AI into S&P's workflows is explored, with Ruth discussing how AI aids in data processing, visualization, and document handling. She balances the technological advancements with the indispensable role of human expertise in maintaining rating accuracy and integrity.

Ruth Yang [38:53]: "We are actively integrating generative AI into our workflows to enhance efficiency and scalability while ensuring that our subject matter experts maintain the unique insights essential to our ratings."

10. Future of Private Credit and Democratization

Bill and Ruth discuss the potential democratization of private credit markets, making them more accessible to retail investors. They debate the challenges and necessary infrastructure required to ensure transparency and reliability as the market expands.

Ruth Yang [42:40]: "As the private credit market grows and becomes more accessible to retail investors, there's a significant need to connect and standardize data to enhance systemic transparency."

11. Conclusion

Bill wraps up the conversation by reflecting on the transformative changes in the financial services industry and the importance of informed education in navigating these shifts. Ruth expresses optimism about the future, highlighting the role of young professionals in driving innovation and solving existing challenges.

Ruth Yang [43:10]: "Young people with an understanding of data sets and generative AI can significantly contribute to connecting and solving data-related challenges in private credit markets."

Bill Kelly [43:45]: "It's remarkable. I learned a lot."

Key Takeaways

• Market Growth: Private credit is rapidly expanding, projected to double within three years, emphasizing its increasing role in corporate financing.

• Rating Importance: Despite not being inherently required, ratings provide crucial risk assessments in an opaque and complex market.

• Documentation Quality: High-quality documentation and robust covenants are vital in maintaining the integrity and stability of private credit agreements.

• Technological Integration: Generative AI is being leveraged to enhance data processing and analytical capabilities, complementing human expertise.

• Future Accessibility: Democratizing private credit presents opportunities and challenges, necessitating improved data connectivity and transparency for broader investor participation.

Notable Quotes with Timestamps

• Ruth Yang [02:01]: "The majority of my time I've been in leveraged finance, broadly syndicated bond markets, indices, calculations, benchmarks."

• Ruth Yang [06:49]: "Private credit stretches from funding SMEs to large transactions, and it's expected to double in size in three years."

• Ruth Yang [16:44]: "Covenant light agreements are a concern in broader syndicated markets, but private credit maintains stronger documentation standards."

• Ruth Yang [31:03]: "A double B is a double B to us, whether it's public or private. Consistency in ratings is key."

• Ruth Yang [38:53]: "Generative AI helps us process data and generate visualizations, but our subject matter experts are essential to our rating process."

• Ruth Yang [42:40]: "Connecting and standardizing data in private credit is crucial as the market becomes more accessible to retail investors."

This episode of Educational Alpha offers a comprehensive exploration of the evolving private credit landscape, the pivotal role of rating agencies, and the intersection of technology and finance. Ruth Yang's insights provide valuable perspectives for professionals and enthusiasts aiming to navigate and understand the complexities of private markets.