Private Credit Concerns in Context

Bullish:

• $PRIVATECREDIT - Institutional private credit opportunities emerging as retail outflows create more lender-friendly spreads and better returns for patient capital.

  • “If you're starting an institutional business today or you're raising capital for institutional product and indirect lending, your returns for the next couple of years could arguably become a lot more attractive at better terms and better covenants.”

    Alex·9:17

  • “For the asset class broadly, the private credit space is a lot more than just direct lending. And there are pockets of private credit that have actually been really dormant for the last several There's been not a lot of activity in special situations, opportunistic funds, restructuring, mezzanine.”

    Alex·14:23

  • “if you have an environment where, you know, the last couple of years when you step back, spreads have come down a little bit because there's been such an influx of retail money. And so if you start to see some of that money leave a little bit, the return environment actually becomes more attractive for the incumbents”

    Speaker 3·19:40

Bearish:

• $SOFTWARE - Software companies face AI disruption risk with 25% of direct lending exposure to software and concerns about terminal value, particularly for ARR loans to non-cash-flowing companies.

  • “Software is a big part of that. We think it's roughly 25 ish percent of exposure in terms of the assets that have been allocated to this part of the market.”

    Alex·3:45

  • “the challenge is going to be some of the software companies that will have terminal value questions.”

    Alex·3:55

  • “one of the things that we've been cautious on for several years are these ARR loans. But these were companies that were not cash flowing but that were growing really quickly, and so lenders chose to lend to those on the basis of a revenue multiple as opposed to a EBITDA and cash flow type analysis. And in a world of AI, it's possible that some of those loans, depending on their business model, don't actually get to cash flow.”

    Speaker 3·18:04