Someone Pays the Piper
Michael Homerick@homerick
−6.3%
since Sep 22
The idea
I think the next credit stress will be uneven rather than systemic, showing up in office refinancings that no longer pencil out and in lower-rated software borrowers whose earnings story is being rewritten by AI. Rather than own the troubled debt, I own the people who profit from sorting it out: restructuring advisers, distressed capital managers, and turnaround specialists, spread across many names rather than one. A slice sits in forced-seller paper, and I keep a cash reserve for when complexity forces more selling. I'd rethink this if credit stress stays calm and orderly instead of messy.
What it owns
- Boutique and mid-market banks collect fees on every debt workout mandate, getting paid whether the borrower recovers or not. · Houlihan LokeyIt runs more corporate restructurings than peers and collects fees whether debt is reworked in court or negotiated privately., PJT PartnersIt typically advises creditors during workouts, where the largest fees accrue when lenders realize loans will not be repaid as written., EvercoreIts debt advisory and restructuring practice earns fees per mandate when borrowers can no longer service debt on original terms., Moelis & CompanyIt has built a significant liability management practice that reworks debt before default becomes necessary, capturing advisory fees throughout the process., LazardIts restructuring practice generates fees from troubled situations independent of overall deal volume in healthier credit markets., Perella Weinberg PartnersIt is a smaller adviser where a few large restructuring mandates significantly move results, providing concentrated exposure to the workout theme.33%
- Large credit platforms with raised capital deploy into stressed assets when forced sellers need quick liquidity at marked-down prices. · Ares ManagementIt runs a major credit platform and raises opportunistic funds designed to buy loans and assets when lenders want to exit quickly., Apollo Global ManagementIt manages one of the largest global credit platforms with capital deployed into stressed assets when forced sellers appear at attractive prices., Brookfield Asset ManagementIt owns Oaktree, a leading distressed debt investor, plus a large real estate platform that can value and acquire troubled properties., BlackstoneIt has scale and dry powder to acquire real estate from sellers under time pressure, capturing the discount when forced sales occur., KKR & CoIts special situations and credit funds provide capital to companies on stressed terms, deployed at wide spreads during periods of uneven credit trouble., TPG IncIt acquired Angelo Gordon to build a credit and special situations platform that deploys capital into stressed real estate and corporate loans., Blue Owl CapitalIt lends directly to software companies that may face stress, positioning it to earn higher fees and returns by reworking or extending those loans.31%
- Firms that bill hourly for restructuring work earn more when corporate and real estate trouble multiplies, regardless of market conditions. · FTI ConsultingIt bills by the hour for turnaround and bankruptcy mandates, so revenue grows with the complexity and severity of client trouble., Jefferies Financial GroupIt trades and advises on stressed debt and troubled credit, earning when loans change hands at reduced prices in secondary markets., Newmark GroupIt advises on commercial real estate loan sales, workouts, and refinancings, with activity rising when office owners refinance debt that rent cannot support.14%
- Direct ownership of debt and claims that emerge from restructurings, captured at discounts when regulatory or contractual rules force sales. · VanEck Fallen Angel High Yield Bond ETFIt holds bonds immediately after investment-grade downgrades force large passive funds to sell, capturing the marked-down prices created by those forced sales., iShares Fallen Angels USD Bond ETFIt captures the same forced-seller discount as its peer through a different fallen angel index, spreading exposure across additional credit downgrades., Burford CapitalIt funds litigation and legal claims including disputes over recoveries in bankruptcies, benefiting when more restructurings generate contested claims.10%
- Cash12%