I appreciate your analytical process of identifying loans valued at/near 100 from issuers with other loans in default. Have you reached out to any of the BDC managers to get their perspective on why these loans are valued the way they are? I know there can be some nuance based on where they fall in the capital stack, would be interesting to get the party line and see if it holds water.
I haven't. It's a great idea but I feel that I would be obliged to give some time to respond. And given that I named 6 BDCs it would be a bit cumbersome. That slows things down and likely I don't have a big enough platform to reply.
In one recent example I sent a request to CalPERS who actually replied ("we have nothing further to add").
I did think about the capital stack placement which is why I didn't include loans where the defaulted loan was valued within 30 points of the senior par loan.
And once a loan goes into non-accrual it implies the equity is near zero and portends trouble.
If there were no other evidence of fair value misadventures I may consider plausible explanations. But given everything we've seen the likely explanation is that fair value isn't materially reduced until a default is imminent. That's why Blackrock had 2 separate 100 to 0 within one quarter.
That's a fair assumption - some differences in marks may be justified by loan-specific features, but multiple 100 to 0 loan writedowns in a quarter is certainly concerning. I'd still be curious about the "company line" from some of these BDCs; I wonder if some of your readers either are shareholders or have enough potentially investable dollars that they could ask similar questions and get a more thorough response from the managers?
I know we use Cliffwater and Calamos/Aksia (both interval FoFs, not BDC), and they've been able to shed light on some valuation nuances that don't come out in the filings and semi-annual reports. That said, I do think we're approaching a point where, as Buffett would say, we're about to find out who's been swimming naked when it comes to PC valuations.
I appreciate your analytical process of identifying loans valued at/near 100 from issuers with other loans in default. Have you reached out to any of the BDC managers to get their perspective on why these loans are valued the way they are? I know there can be some nuance based on where they fall in the capital stack, would be interesting to get the party line and see if it holds water.
I haven't. It's a great idea but I feel that I would be obliged to give some time to respond. And given that I named 6 BDCs it would be a bit cumbersome. That slows things down and likely I don't have a big enough platform to reply.
In one recent example I sent a request to CalPERS who actually replied ("we have nothing further to add").
I did think about the capital stack placement which is why I didn't include loans where the defaulted loan was valued within 30 points of the senior par loan.
And once a loan goes into non-accrual it implies the equity is near zero and portends trouble.
If there were no other evidence of fair value misadventures I may consider plausible explanations. But given everything we've seen the likely explanation is that fair value isn't materially reduced until a default is imminent. That's why Blackrock had 2 separate 100 to 0 within one quarter.
That's a fair assumption - some differences in marks may be justified by loan-specific features, but multiple 100 to 0 loan writedowns in a quarter is certainly concerning. I'd still be curious about the "company line" from some of these BDCs; I wonder if some of your readers either are shareholders or have enough potentially investable dollars that they could ask similar questions and get a more thorough response from the managers?
I know we use Cliffwater and Calamos/Aksia (both interval FoFs, not BDC), and they've been able to shed light on some valuation nuances that don't come out in the filings and semi-annual reports. That said, I do think we're approaching a point where, as Buffett would say, we're about to find out who's been swimming naked when it comes to PC valuations.