00:00The stock market has barely blinked with all these blow ups.
00:04The credit market kind of dismissed them as idiosyncratic until Jamie Dimon warned about the prospect of more cockroaches.
00:10And then that kind of got people's attention just a little bit here.
00:13At what point does this become something that the credit market starts to panic over?
00:18Well, we don't we we haven't seen it yet. As you as you say, credit spreads are still almost record, record lows.
00:25So so people are still partying. You know, if the punch bowl is being taken away, only a couple of people may have noticed it yet.
00:35But but so far, it's still it's still partying like it's 1999 in the credit markets for the most part.
00:42What I found really fascinating was that Jamie Dimon didn't really target private credit in his comments.
00:47He kind of just made the comments generally. Yet the industry got kind of defensive when he spoke up.
00:52Are these firms justified in doing so? I mean, you point out that they have promised these equity like returns that raises questions about the economics of their business.
01:00Yeah, there's two things that bother me the way the way private credit is being sold to investors.
01:06And I sit on investment committees. So I see this. And and really, it's one of these too good to be true type type promises.
01:13We're going to give you senior debt exposure, often secured somehow, but but with equity rates of return, double digit type returns,
01:21which makes you wonder about the underlying credits themselves. That's number one.
01:26And then related to that is how much leverage is being used within the vehicles to juice the equity like rate of return.
01:34And then the other thing that's concerning to me is the explosion now in captive regulated subsidiaries by the largest, largest players in this area,
01:47owning insurance companies and where there really isn't a true arm's length difference between the people buying the credit and the people selling the credit to them.
01:57And that is worrisome. That's something we saw in the Drexel days, by the way. One of the things that that got us so concerned in 1988 and 89 in the Drexel junk bond
02:09kingdom was the fact that more and more of Mike Milken's clients had regulated subsidiaries like savings and loans, insurance companies, thrifts,
02:19trust companies, where they were they were buying the same credit that in effect others in the kingdom were selling without a lot of arm's length
02:31disclosure. And so that is something to keep our eye on, I think, is the use of captive regulated subs to buy this stuff.
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