Are private credit funds worth it?

Toby Nangle is going to help me with something I’ve wondered about. I look forward to trying to explain it to myself and perhaps with you, though I suspect most of you know more than me and will have a little giggle at my naivety

I know what Toby means “unbelievable” and it isn’t an expression of delight.

Incredulity = unbelievability.

On the face of it, the firms lent money by private credit funds are back keeping  up with payments after a nasty spike during Covid.

Even the leveraged loans seem manageable right now  – but not when you discover you’re getting paid something called “PIKs” instead of cash, you may be getting a little nervous

Conversion of cash pay interest to [Payment-In-Kind] PIK, amortization holidays or maturity extensions without adequate offsetting compensation — are events generally considered as a “Selective Default” – or so we find out.

If I get this right, PIKs are just more debt being issued, which is what happened in a roll up mortgage except that rather than having a solid asset , what you have is the company who can’t pay you cash.

Which leads to Toby redrawing his card to show you the state of affairs including a line where PIKs are treated as a default.

SD = Selective Defaults

You will only know if all these selective defaults mean  trouble when it comes to you wanting  the debt paid back. It is what I think of as an “interest only” loan with “interest rolled up”.  My guess is that defaults in the private world are not being allowed to give the bond issuer a black mark – so long as they pay these PIKs.

Toby clearly has a mate who’s smart on this