High Yield Credit and Leveraged Loans: Navigating Credit Market Shifts in a Post-Credit Suisse Landscape

The collapse of Credit Suisse in March 2023 and its subsequent emergency acquisition by UBS created seismic shifts in global credit markets. As UBS absorbs the legacy of its smaller rival, it faces a dual challenge: managing the integration of Credit Suisse's $1.8 trillion asset management division while navigating a high-yield and leveraged loan market shaped by macroeconomic volatility, trade policy uncertainty, and evolving risk dynamics. UBS's strategic moves—including the termination of its Aladdin contract with BlackRock and the application of expertise like Leslie Falconio's insights—reveal a nuanced approach to capitalizing on opportunities in these markets.

Strategic Reconfiguration: The Aladdin Exit and Cost Rationalization

UBS's decision to terminate its multimillion-dollar contract with BlackRock's Aladdin platform, inherited from Credit Suisse, underscores its commitment to streamlining operations. The Aladdin system, which had generated $50–100 million annually in revenue for UBS since 2019, is being decommissioned as part of broader cost-cutting efforts. This move aligns with UBS's target of $13 billion in gross cost reductions by 2026, as it integrates Credit Suisse's IT infrastructure and reduces redundancies. While the termination may seem counterintuitive for a firm managing $1.8 trillion in assets, it reflects a calculated shift toward leaner, in-house systems and a focus on profitability over legacy dependencies.

The cost rationalization extends beyond technology. UBS has imposed strict limits on lending, spending, and contract sizes for Credit Suisse's operations, a response to the latter's historical risk management failures. These constraints, however, have also created a more disciplined environment for evaluating high-yield and leveraged loan opportunities. With a CET1 capital ratio of 14.3% as of March 2025, UBS is in a strong position to deploy capital selectively, prioritizing quality over volume in a market where spreads remain elevated.

Falconio's Role: Balancing Caution and Opportunity

Leslie Falconio, UBS's Global Wealth Management Head of Taxable Fixed Income Strategy, has emerged as a key figure in shaping the firm's approach to high-yield and leveraged loans. Her neutral stance, articulated in Bloomberg interviews, reflects a cautious yet opportunistic mindset. Falconio's analysis highlights a structural shift in the U.S. high-yield market: default rates have declined since 2008, and the sector is increasingly dominated by higher-graded debt with stronger cash flow metrics. This trend, supported by UBS's enhanced HOLT valuation service (acquired in 2024), suggests that high-yield bonds are less volatile than historical averages.

Falconio's strategy emphasizes quality over quantity. For instance, UBS has favored BB- and B-rated high-yield bonds, which returned 2.9% and 1.9% year-to-date through May 2025, respectively, compared to just 1.2% for CCC-rated bonds. This approach is informed by UBS's enhanced analytical tools, which provide granular insights into sector-specific risks. The firm has identified strength in industrials, technology, and utilities, while flagging vulnerabilities in communications and basic materials.

Navigating Risk Dynamics: Post-Merger Realities

The UBS-Credit Suisse merger, orchestrated by the Swiss government, has left a complex legacy. While UBS received 214 billion USD in liquidity guarantees and a 9.63 billion USD loss buffer, it also inherited legal liabilities and reputational risks. Class-action lawsuits from Credit Suisse shareholders and a $511 million settlement with the U.S. Department of Justice over tax evasion probes have weighed on profitability. These challenges have reinforced UBS's risk-averse posture, particularly in high-yield and leveraged loan markets where transparency is often limited.

However, the merger has also created strategic advantages. UBS now boasts a broader credit platform, combining its U.S. high-yield expertise with Credit Suisse's European-focused strategies. This synergy has enabled the firm to expand its origination capabilities in European senior loans, where issuance hit €42 billion in Q1 2025. The European market's stronger performance—driven by higher coupon income and lower default rates—has become a focal point for UBS's leveraged loan strategies.

Opportunities in a Fragmented Market

The current credit landscape is defined by a mismatch between supply and demand. Elevated yields have attracted income-seeking investors, but new issuance remains constrained by sluggish M&A activity and extended private equity hold periods. UBS is capitalizing on this imbalance by focusing on refinancings and repricings, which dominate 85% of leveraged loan supply. For example, U.S. senior loan issuance reached $337 billion in Q1 2025, with most deals extending maturities rather than funding new acquisitions.

UBS's approach to leveraged loans also incorporates a dry powder strategy. By maintaining liquidity, the firm is positioned to pounce on relative value opportunities as spreads evolve. Falconio's team has identified potential in sectors with pricing flexibility and strong management, such as technology and industrials, while avoiding overexposure to tariff-sensitive industries like communications.

Conclusion: A Calculated Path Forward

UBS's post-Credit Suisse strategy in high-yield and leveraged loans is a masterclass in balancing caution with opportunity. The firm's exit from Aladdin, cost rationalization, and Falconio's sector-specific insights reflect a disciplined approach to navigating a fragmented market. For investors, this suggests a focus on quality, liquidity, and sector diversification. While the macroeconomic environment remains uncertain, UBS's enhanced analytical tools and risk management framework position it to capitalize on the current yield environment without overexposing its balance sheet.

In a world where credit markets are as volatile as they are lucrative, UBS's measured strategies offer a blueprint for resilience—and a reminder that opportunity often thrives in complexity.