00:00James, you spoke on a podcast with a couple of folks, you do this every week, and Citi's head of
00:05spread products talk about private credit rookies and, in fact, called them tourists and had a warning about them. Tell
00:12us what you learned.
00:13Yeah, so for years we've been asking where are the problems in private credit, and we often get the response
00:17that there are problems out there.
00:19We don't know where they are. It's not us. It's the tourists, as in the newcomers to the asset class.
00:24There were a lot of them. The market expanded very quickly, and we had a lot of new entrants.
00:29And, you know, there were times of easy money when loans were getting done without too much due diligence, and
00:35that's what we're talking about here.
00:36So when you're talking about tourists, you're talking about the lenders themselves, not necessarily the borrowers.
00:40The funds, yep, coming in. Maybe they're, you know, brand new. Maybe they need to win business by doing deals
00:47that others wouldn't.
00:47Those deals are starting to hit the wall in terms of maturities, and we're also getting this software blow up
00:53as well that's kind of feeding through.
00:55Yeah, there's a wall of maturity coming due, Davide, over the next couple of years.
01:002028 is kind of quoted as the high watermark there for that. How concerning is this to the folks that
01:06you talk to regularly?
01:09Yeah, it's an interesting question because I think there is a tendency to kind of dismiss concerns about maturity walls
01:14because the debt can be easily refinanced.
01:16I think right now everyone is focused on software and the valuations of some of those companies.
01:21So you could say that a loan done a few years ago at a 40% loan to value was
01:28like a solid loan, but if the value of that company by the time that that comes due has halved,
01:34then you're looking at a very different situations.
01:36And these are some of the questions that analysts are asking the big private credit managers out there right now.
01:41Right. And a poster child for that idea is Medallia, this beleaguered software firm, James, that was taken private at
01:48a $6.4 billion valuation back in 2021 by Toma Bravo.
01:52Orlando Bravo says that the creditors will probably take the keys back to the company because they did not extend
01:58a lifeline.
01:59That's a massive loss. It's a $5 billion hit in private credit, which I think is the biggest we've seen.
02:04And that deal was being slowly marked down. We knew there were problems. But, you know, this is quite shocking.
02:09It's quite shocking. And I guess it's going to cast a pall as well, Davide, over the events next week.
02:16You're going to be attending the Milken Global Institute Conference. Private credit has been something that was celebrated in years
02:22past.
02:22I remember last year everyone was so bullish on it. What are you anticipating this year?
02:28We're anticipating a very different tone to the discussions in general.
02:32Obviously, we're far away from the golden moment and golden age comments of your past.
02:39We live in a very different environment. I think it's going to be interesting because a lot of the industry
02:43titans are going to be networking and pitching to some of the most sophisticated investors in the world.
02:49Think big institutions, pension funds and sovereign wealth funds.
02:52And those are some of the players that in an environment where there is skittish on the retail side could
02:59really come in and help turn things around for private credit managers.
03:02So it'll definitely be an interesting three days.
03:05James, if retail investors are skittish, do you see any of that nervousness spilling over into the institutional investor base?
03:10Certainly a risk. I mean, if you think there are worries at the low level, you know, what else is
03:15out there?
03:15You don't know. There's a lot of fear of the unknown here. It's private. It's very, you know, no transparency,
03:20no liquidity.
03:21So, you know, in some some cases, you know, a lot of global money was flowing into U.S. private
03:25credit.
03:26That money might just flow out. Does the Iran war change also how people think about private credit, James?
03:31There was a lot of Middle East money in U.S. private funds that may have to be repatriated.
03:35But, yes, I mean, as long the longer the war drags on, the more inflation we get, the more of
03:39a hit we get to consumers.
03:40That all has to feed through to fundamentals and none of that is in the price.
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