I don’t care how many lawyers you have… to go from 1 loan at 82 to two PIK loans at par and the smaller distressed loan is a mile over the line…
…like even without specifics there’s probably what an 80-85cent CEILING on any PIK paper on earth right now… (meaning for a real arms length transaction between truely legitimate counterparties.)
Thanks for your comment Kurt. Well said and super relevant. Interesting especially on the pricing of PIK at automatic discounts. If that’s the case I don’t know how they can justify 100 - especially for a new PIK on a clearly distressed credit. Their valuation team seems to be ignoring reality. I don’t know how the lawyers get comfortable with this.
Thanks for this. Great job. Having separate buckets for incentive fees on 1. income and 2. capital gains helps make this happen. Blackstone can take a capital loss and it doesn't matter to the income-based incentive fee.
Was it clear from the disclosures that the debt was split from one to three tranches? or did you infer it?
Also, do you know the interest rate on the original loan?
Finally, the sum of the FV's for the three tranches ($425.6 million) as of Dec 2025 is less than the FV tranches. These seem like new securites to me....would they not have to have recognized a loss on the Non-accrual tranche? I guess this is your point.
Blackstone being blackstone (i think this fund's 10k runs two thousand pages if I am not mistaken), the lawyers will have found a way to make this work and its all disclosed, etc. etc.
But that don't make it kosher. this is a bad look.
I found some PIK Preferred equity (paying a 14% *dividend* if I recall) in HL's private assets fund. No hurdle rate in this one. That means a 1.4% incentive fee alone, harvested quarterly.
Thanks. Appreciate it. Good question. They reported one loan in Q3 2025. Then in Q4 they reported 3 “new” loans. The original loan and “new” loans were all SOFR + 575. The language of “split” is somewhat arbitrary. The acquisition date for the split loans was December 2025. So they swapped one for 3 or split 1 for 3 or exchanged…. Not sure there is a legal difference.
On the fair value, I just added the 3 tranches it comes out to $425.6.. Not sure what you mean.
Our BDC Intel app now his the graphical history as I used in this post and a more comprehensive table format with more details. I was going to attach image here of the table view but don’t think I can attach images in chat.
Good question. Aggregate unrealized losses may have increased, but that doesn’t mean that it couldn’t decline for some borrowers. EG if 10 borrowers saw an increase in unrealized losses of $10M but one borrower saw a decline in unrealized losses for $2M that’s still a net $8M increase in unrealized losses. Also, it’s possible they took a realized loss on the restructuring but I don’t think so because the principal balance largely stayed the same. And they don’t disclose (from what I’ve seen) the composition of realized losses at the borrower level.
I initially suggested they may have taken a realized loss, but when I saw the principal was largely unchanged and couldn’t find a specific mention of a realized loss for that borrower, I thought they hadn’t recognized a loss.
I’ve been trying to find borrower / loan level realized losses but haven’t managed to systematically track that down for BDCs.
The article isn't at all misleading. Saying that's "just the way the accounting works" isn't really an answer. Not even close. If that's what investor relations said it's not a very confidence inspiring answer.
Not sure what you mean by "May financial statements" the restructuring happened in Q4 2025.
Great articles Rod. Short insightful and timely. Thanks
Thanks Jason. Appreciate it.
I love your articles, Rod! I joined substack to keep reading them.
Thanks Elena. Appreciate the support and feedback.
I don’t care how many lawyers you have… to go from 1 loan at 82 to two PIK loans at par and the smaller distressed loan is a mile over the line…
…like even without specifics there’s probably what an 80-85cent CEILING on any PIK paper on earth right now… (meaning for a real arms length transaction between truely legitimate counterparties.)
Thanks for your comment Kurt. Well said and super relevant. Interesting especially on the pricing of PIK at automatic discounts. If that’s the case I don’t know how they can justify 100 - especially for a new PIK on a clearly distressed credit. Their valuation team seems to be ignoring reality. I don’t know how the lawyers get comfortable with this.
Thanks for this. Great job. Having separate buckets for incentive fees on 1. income and 2. capital gains helps make this happen. Blackstone can take a capital loss and it doesn't matter to the income-based incentive fee.
Was it clear from the disclosures that the debt was split from one to three tranches? or did you infer it?
Also, do you know the interest rate on the original loan?
Finally, the sum of the FV's for the three tranches ($425.6 million) as of Dec 2025 is less than the FV tranches. These seem like new securites to me....would they not have to have recognized a loss on the Non-accrual tranche? I guess this is your point.
Blackstone being blackstone (i think this fund's 10k runs two thousand pages if I am not mistaken), the lawyers will have found a way to make this work and its all disclosed, etc. etc.
But that don't make it kosher. this is a bad look.
I found some PIK Preferred equity (paying a 14% *dividend* if I recall) in HL's private assets fund. No hurdle rate in this one. That means a 1.4% incentive fee alone, harvested quarterly.
Thanks. Appreciate it. Good question. They reported one loan in Q3 2025. Then in Q4 they reported 3 “new” loans. The original loan and “new” loans were all SOFR + 575. The language of “split” is somewhat arbitrary. The acquisition date for the split loans was December 2025. So they swapped one for 3 or split 1 for 3 or exchanged…. Not sure there is a legal difference.
On the fair value, I just added the 3 tranches it comes out to $425.6.. Not sure what you mean.
Our BDC Intel app now his the graphical history as I used in this post and a more comprehensive table format with more details. I was going to attach image here of the table view but don’t think I can attach images in chat.
You describe this as a trick to “reduce unrealized losses”.
But to me it looks like unrealized losses actually increased from Sept25 to Dec25?
Good question. Aggregate unrealized losses may have increased, but that doesn’t mean that it couldn’t decline for some borrowers. EG if 10 borrowers saw an increase in unrealized losses of $10M but one borrower saw a decline in unrealized losses for $2M that’s still a net $8M increase in unrealized losses. Also, it’s possible they took a realized loss on the restructuring but I don’t think so because the principal balance largely stayed the same. And they don’t disclose (from what I’ve seen) the composition of realized losses at the borrower level.
You suggest that BCRED made a $120 million unrealized loss disappear. In reality, they crystallized it into a $120 million realized loss.
That’s a highly relevant distinction and should be reflected in your article.
Where did you see that?
I initially suggested they may have taken a realized loss, but when I saw the principal was largely unchanged and couldn’t find a specific mention of a realized loss for that borrower, I thought they hadn’t recognized a loss.
I’ve been trying to find borrower / loan level realized losses but haven’t managed to systematically track that down for BDCs.
It's just the way accounting works. There will be more detail included in the May financial statements.
As a check, I also just confirmed it with BCRED investor relations, something you probably should have done before posting this misleading article...
The article isn't at all misleading. Saying that's "just the way the accounting works" isn't really an answer. Not even close. If that's what investor relations said it's not a very confidence inspiring answer.
Not sure what you mean by "May financial statements" the restructuring happened in Q4 2025.
They confirmed that a realized loss was booked.
Details will be included in the Q1 2026 10Q which will be available in May.
“Side note to policymakers”……You nailed it. That’s the way to do it.
Thanks
It sort of reminds me of subprime (but I am not an expert).
Yes, it is similar. Same players, same technology, same crap due diligence, same models, same rating agencies.
Great piece! I am assuming that the incentive fee is based on accrued interest not realized. Would you know the coupon on the original loan? Thanks
Almost criminal that BDCs and PC funds are allowed to do this. Just asset gatherers with not much credit expertise I think
"Serenity now, insanity later."