Letter: The Economist's Buttonwood should follow the finance icons
Short one today as I’ve been working on a long-form piece on GB Energy.
Letter to the Economist:
Buttonwood’s hot take on the early demise of the private credit boom is more like hot air. Private credit terms are invaluable to smaller firms or companies in distress, which the banks cannot service well. Aside from just offering more flexible interest payments, they can make more creative investments like leasing or mezzanine debt that can convert to equity. Torsten Slok of Apollo also highlighted in April that the LBO market is roaring back to life as of Q4 2023, and private credit represents the lion’s share of the financing.
Profits also seem unlikely to go away any time soon. Week after week, Matt Levine of Bloomberg highlights exotic new ways for private lenders to make money, each more absurd than the last. The latest was a synthetic payment-in-kind loan by Blue Owl Capital. They finance companies to pay off debts with another lender, then issue additional debt when their own interest comes due. This also allows Blue Owl to avoid restrictions from their bank lenders and charge higher fees to their investors.
Though perhaps the end is nigh after all. Litquidity, the finance industry’s Instagram “memelord”, has been surprisingly quiet on private credit lately. For all the banter, he has his finger on the pulse of industry trends and exciting job opportunities. If it’s no longer hot on Litquidity, maybe the Golden Age really is over.