Fixed Income Forum

Flawed Valuations Threaten $1.7 Trillion Private Credit Boom

(Originally Published by Bloomberg)

According to SOLVE, about three-quarters of PIK loans were valued at more than 95 cents on the dollar at the end of September. “This raises questions about how portfolio companies struggling with interest servicing are valued so high,” says Eugene Grinberg, the fintech’s cofounder.

An equally perplexing sign is the number of private funds who own publicly traded loans, and still value them much more highly than where the same loan is quoted in the public market.

In a recent example, Carlyle Group Inc.’s direct-lending arm helped provide a “second lien” junior loan to a US lawn-treatment specialist, TruGreen, marking the debt at 95 cents on the dollar in its filing at the end of September. The debt, which is publicly traded, was priced at about 70 cents by a mutual fund at the time. Most private credit portfolios “remain above their public market peers,” the BoE’s Foulger noted in his speech on “nonbank” lenders.

 

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