PEs & 31,000 Portcos; Proceed With Caution?; SVB and CLOs; Most Important Chart; The ECB on SRTs; Private Credit Market Size; Surprising Driver of Auto Loan Delinquencies; Deals!
I'm not saying that private credit doesn't have its risks/problems/whatever, but at a price lots of not so great things can be attractive investments, while some fabulous businesses can be risky. I've owned WMT for 20 years and can't tell you how much I respect the company. However, just in the last year, where any changes to the underlying business have been minor, it's 52 week range is 80 to 117 (currently 111). Just two years ago it traded at 52. Current 40x earnings for a company in which the needle is really hard to move in a big way seems vey rich. I call that price risk.
I would pay attention to publicly traded BDCs. You noted an Oaktree loan in this post. Just to point out a few facts: Their publicly traded BDC (OCSL) has indeed suffered from poor performance. NAV is down about 25% from 12/31/21 to 9/30/25 (ouch). But its price from the same starting point until today is down 43%. You can certainly make a case that even the latter drop isn't enough if you don't believe their marks or think management has lost its touch permanently or you're afraid credit contagion will make these numbers moot. It's true that if liquidity dries up and suddenly there are forced sellers (I was involved intimately in '07-'09), then in the short run there can be eye popping drops.
Yeah, that’s a well-publicised blow-up, and in hindsight it looks pretty dumb, those e-commerce roll-ups. There was another company like that, OpenStore, that Keith Rabois funded. I asked him on Twitter what the thesis behind it was and how it was even going to work. He replied with something like, “It will,” or another dismissive answer. Well, it seems like they were liquidated.
Here is the article on Oaktree and Thrasio. I found it helpful.
Yes, those BDC marks are interesting, and are impossible to know what real NAV is from the outside. Would be interesting to see how they marked each loan over time (it should be in 10-Qs), and if there is a trend of significant repricing quarter over quarter, which would signal to me they wait too long to downgrade. Oaktree though should have a good DNA with Marks and Karsh, so I am not sure what to think of it.
You are correct. It’s in every 10q…loan by loan, so you can indeed go back and look. I should do that for Thorasio. I seem to remember that name may have been approx 2% of assets and it all went to zero. If my memory is correct (not a given), that would imply about a 4% hit to NAV (assumes debt/equity 1x) from one borrower.
During the 3 months ended 6/30/2024 the Company recorded an aggregate net realized loss of $69.5 million, which consisted of the following....Thorasio $68.5 million.
A year earlier the June 30,2023 10Q indicated the first lien term loan plus preferred equity investments in the company totaled almost $81 million at fair value. Total investments at fair value at that time were $3.135 billion, so Thorasio was a 2.6% position. Throw in debt/equity of a bit over 1.1x for the entire BDC and you get spanked!
I hate to admit it, but it’s the first of yours that I have read. But I am comparing you to everyone else, including regular notes from many major banks and brokers. It’s so easy to read too much, but hard to hunker down to the best pieces which are maybe 5 or so. You are now part of that “5 or so”
I'm not saying that private credit doesn't have its risks/problems/whatever, but at a price lots of not so great things can be attractive investments, while some fabulous businesses can be risky. I've owned WMT for 20 years and can't tell you how much I respect the company. However, just in the last year, where any changes to the underlying business have been minor, it's 52 week range is 80 to 117 (currently 111). Just two years ago it traded at 52. Current 40x earnings for a company in which the needle is really hard to move in a big way seems vey rich. I call that price risk.
I would pay attention to publicly traded BDCs. You noted an Oaktree loan in this post. Just to point out a few facts: Their publicly traded BDC (OCSL) has indeed suffered from poor performance. NAV is down about 25% from 12/31/21 to 9/30/25 (ouch). But its price from the same starting point until today is down 43%. You can certainly make a case that even the latter drop isn't enough if you don't believe their marks or think management has lost its touch permanently or you're afraid credit contagion will make these numbers moot. It's true that if liquidity dries up and suddenly there are forced sellers (I was involved intimately in '07-'09), then in the short run there can be eye popping drops.
Best to you in '26.
Yeah, that’s a well-publicised blow-up, and in hindsight it looks pretty dumb, those e-commerce roll-ups. There was another company like that, OpenStore, that Keith Rabois funded. I asked him on Twitter what the thesis behind it was and how it was even going to work. He replied with something like, “It will,” or another dismissive answer. Well, it seems like they were liquidated.
Here is the article on Oaktree and Thrasio. I found it helpful.
https://www.ft.com/content/daf1e098-a4be-4bbb-89d8-7c95f2a66c27
Yes, those BDC marks are interesting, and are impossible to know what real NAV is from the outside. Would be interesting to see how they marked each loan over time (it should be in 10-Qs), and if there is a trend of significant repricing quarter over quarter, which would signal to me they wait too long to downgrade. Oaktree though should have a good DNA with Marks and Karsh, so I am not sure what to think of it.
Happy New Year to you!!!
You are correct. It’s in every 10q…loan by loan, so you can indeed go back and look. I should do that for Thorasio. I seem to remember that name may have been approx 2% of assets and it all went to zero. If my memory is correct (not a given), that would imply about a 4% hit to NAV (assumes debt/equity 1x) from one borrower.
Ouch!
I did find it. From the June 30,2024 10Q, Note 8:
During the 3 months ended 6/30/2024 the Company recorded an aggregate net realized loss of $69.5 million, which consisted of the following....Thorasio $68.5 million.
A year earlier the June 30,2023 10Q indicated the first lien term loan plus preferred equity investments in the company totaled almost $81 million at fair value. Total investments at fair value at that time were $3.135 billion, so Thorasio was a 2.6% position. Throw in debt/equity of a bit over 1.1x for the entire BDC and you get spanked!
For me, this was the most productive read in a long long time.
Wait a minute – are you saying the previous 23 letters were not as productive?! (jk).
It is a very kind note – I am really glad you found this valuable and time-worthy.
I hate to admit it, but it’s the first of yours that I have read. But I am comparing you to everyone else, including regular notes from many major banks and brokers. It’s so easy to read too much, but hard to hunker down to the best pieces which are maybe 5 or so. You are now part of that “5 or so”
No pressure:) Happy New Year!
Some people had issues downloading the Excel file (4Q25 Deals). It should now work properly.