I'd be interested to know your thoughts on publicly-traded BDC debt, particularly as it relates to large sponsors acting to backstop that debt, if in distress.
I took a deep look at FS KKR debentures when they gapped out prior to the junk downgrade this spring. My thought was that, while clearly bankruptcy remote from KKR the sponsor, that is would be a market-brand catastrophe for KKR to let the debt of the BDC go down. And thus KKR would step up to support. Which, of course, they recently did.
Bank regulators have made it very clear that this is a no-no for regulated bank (sponsors of CLO's CMBS, etc). But it's less of an issue in the private debt space.
And the fuzzy, imperfect, caveated conclusion to jump to, is that BDC debt has the implied guarantee of the sponsor, and shouldn't trade too wide of them.
Hey Leyla - interesting question on mortgage REITs.
One firm/fund that seems like it could be interesting to me is the Lending Fund run by DLP Capital which has a great 10+ year track record (absolute and relative). It’s all multifamily (so not as diversified as the public m-REITs though that has been alpha by avoidance for DLP with no office pain taken since COVID) but that’s one I’d be curious to get your view on if you ever get a chance.
Hi Matt, I looked up this fund. Because it’s exempt from public registration requirements, there isn’t much filed publicly with the SEC aside from the Form D notice filing.
Hey Leyla,
I'd be interested to know your thoughts on publicly-traded BDC debt, particularly as it relates to large sponsors acting to backstop that debt, if in distress.
I took a deep look at FS KKR debentures when they gapped out prior to the junk downgrade this spring. My thought was that, while clearly bankruptcy remote from KKR the sponsor, that is would be a market-brand catastrophe for KKR to let the debt of the BDC go down. And thus KKR would step up to support. Which, of course, they recently did.
Bank regulators have made it very clear that this is a no-no for regulated bank (sponsors of CLO's CMBS, etc). But it's less of an issue in the private debt space.
And the fuzzy, imperfect, caveated conclusion to jump to, is that BDC debt has the implied guarantee of the sponsor, and shouldn't trade too wide of them.
Comments ?
It's a good question -- and I had a thread on Twitter a while ago (linking it below, there are some great thoughts in comments).
I agree with your conclusion: defaulting on the debt would be such a disaster that no major asset manager would be willing to risk it.
https://x.com/LeylaKuni/status/2030785945130377445?s=20
Hey Leyla - interesting question on mortgage REITs.
One firm/fund that seems like it could be interesting to me is the Lending Fund run by DLP Capital which has a great 10+ year track record (absolute and relative). It’s all multifamily (so not as diversified as the public m-REITs though that has been alpha by avoidance for DLP with no office pain taken since COVID) but that’s one I’d be curious to get your view on if you ever get a chance.
Hi Matt, I looked up this fund. Because it’s exempt from public registration requirements, there isn’t much filed publicly with the SEC aside from the Form D notice filing.
Got it, thanks so much for following up!
Thanks Leyla, so grateful for your insights. Look forward to reading everything you write!