I can very easily picture a new Fed Chair pushing through rate cuts leading to a refinancing relief trade for poorer performing credits. All-in a net negative for equity bagholders as they face a range of negative outcomes.
Outstanding weekly roundup as always. The Goldman dispersion warning is probaly the most important takeaway here. When Reynolds talks about managers having to explain mistakes from previus portfolios, he's clearly talking about the 2021 and 2022 vintages where everyone was chasing deals at insane valuations. Ares Capital dropping 12% while the broader market held up shows investors are starting to differntiate between reported NAVs and actual credit quality. The WebPros deal moving from leveraged loans back into private credit at 525bps over SOFR is fascinating, basically admitting that covenant flexibility is worth more than cheaper pricing right now. That structural shift tells you a lot about where sponsors think we are in the cycle.
Excellent comprehensive roundup. The dispersion warning from Goldman is particularly important becuase it signals the end of the rising tide lifting all boats phase in private credit. The data point that Ares Capital is down 12% despite being one of the most established and well managed BDCs tells you the selloff is indiscriminate. Your point about dividend coverage at 105% leaving zero margin for error is crucial. I think the contrarian case has merit at these valuations, but only for managers with genuine underwriting discipline and institutional memory from prior cycles. Companies like Ares Management that have been through multiple credit cycles understand how to navigate stress in ways that newer entrants simply dont. The question is whether the mark to market pressure forces even the quality managers to crystalize losses before fundamentals play out.
More pain to be felt in the sector as the private credit funds catch up to the discounts in the public BDC space. PC guys try to say they have higher standards and more protections but the reality is they are financing more highly leveraged asset-light credits that the BSL market often won’t finance.
Excellent deep dive on the BDC selloff. The Goldman dispersion warning is particularly noteworthy - the idea that we're seeing historic perfrmance gaps for the first time since GFC suggests the indiscriminate capital deployment era is truly over. Ares Capital's 12% decline while maintaining its dividend (unlike Blackstone's BCRED) shows relative positioning matters. The 23% technology exposure stat is concerning given AI disruption risks, but the contrarian case at 20% NAV discounts has merit if credit quality holds. The real test is whether managers can navigate this without the Fed put.
I can very easily picture a new Fed Chair pushing through rate cuts leading to a refinancing relief trade for poorer performing credits. All-in a net negative for equity bagholders as they face a range of negative outcomes.
Outstanding weekly roundup as always. The Goldman dispersion warning is probaly the most important takeaway here. When Reynolds talks about managers having to explain mistakes from previus portfolios, he's clearly talking about the 2021 and 2022 vintages where everyone was chasing deals at insane valuations. Ares Capital dropping 12% while the broader market held up shows investors are starting to differntiate between reported NAVs and actual credit quality. The WebPros deal moving from leveraged loans back into private credit at 525bps over SOFR is fascinating, basically admitting that covenant flexibility is worth more than cheaper pricing right now. That structural shift tells you a lot about where sponsors think we are in the cycle.
Excellent comprehensive roundup. The dispersion warning from Goldman is particularly important becuase it signals the end of the rising tide lifting all boats phase in private credit. The data point that Ares Capital is down 12% despite being one of the most established and well managed BDCs tells you the selloff is indiscriminate. Your point about dividend coverage at 105% leaving zero margin for error is crucial. I think the contrarian case has merit at these valuations, but only for managers with genuine underwriting discipline and institutional memory from prior cycles. Companies like Ares Management that have been through multiple credit cycles understand how to navigate stress in ways that newer entrants simply dont. The question is whether the mark to market pressure forces even the quality managers to crystalize losses before fundamentals play out.
More pain to be felt in the sector as the private credit funds catch up to the discounts in the public BDC space. PC guys try to say they have higher standards and more protections but the reality is they are financing more highly leveraged asset-light credits that the BSL market often won’t finance.
Excellent deep dive on the BDC selloff. The Goldman dispersion warning is particularly noteworthy - the idea that we're seeing historic perfrmance gaps for the first time since GFC suggests the indiscriminate capital deployment era is truly over. Ares Capital's 12% decline while maintaining its dividend (unlike Blackstone's BCRED) shows relative positioning matters. The 23% technology exposure stat is concerning given AI disruption risks, but the contrarian case at 20% NAV discounts has merit if credit quality holds. The real test is whether managers can navigate this without the Fed put.