I’m not a credit guy. In a different world I fancy myself a lender extraordinare but alas here we are.
A Twitter compadre flagged some bonds to me today (hat tip) which seem downright interesting. They are part of the debt package backing the Blackstone Private Credit Fund (BCRED) and have traded down materially as rates have risen and fears around default rates in private credit are abound:
For investment grade credit, the yield to maturity on these bonds seems pretty enticing. Given BCRED equity is at roughly 40% LTV, and has 1.0x leverage roughly speaking, that puts the last dollar of debt around a 20% LTV. I’m not sure what the implied default / recovery rate on the portfolio has to be to wipe the equity and start debt impairment but finger in the air it seems like a draconian scenario. Else I think that this credit is probably one that pulls to par over time.
Locking in a 7%+ pretax return on investment grade credit doesn’t seem so bad (if it does indeed pull to par). Alas it isn’t quite for us (and individual credits are above my competence), but this market is serving up interesting opportunities in many different parts of the market
Disclosure: We do not own BCRED debt or equity, this is not investment advice. Do your own work.