Andrew Milgram

A default doesn't exist unless I, the lender, call it.

So if I don't want defaults in my portfolio, I simply don't call them.

I always tell people, don't ask the default rate of a private.

Ask the waiver rate.

Ask the amendment rate.

How much are they having to put hands on their credit to reorient the documents to fit the reality of the company they're operating in?

We have some evidence in the BDC market.

The BDC market, so business development corporations, are essentially public direct lenders.

And there's an instrument or a device in credit called pick debt.

Are you familiar with that at all?

You can explain it, but yeah.

The formal name is payment in kind.

So rather than pay you a coupon, I will pay you more debt.

Now, we oftentimes say PIC means payment isn't coming because when you look at the data, what you see is when there's a lot of PIC in a particular instrument, typically that company is going to default and you ultimately will not recover that PIC debt.

It's a bit of a mirage that individual loan officers or credit committees will use to disguise maybe a less than, let's say, fulsome credit decision.

Or by the way, there are legitimate uses for it.

But if a company can't pay you a cash coupon, you are taking some amount of equity risk.

So the larger the portion of PIC debt in a particular instrument, the more equity risk you're taking in that investment.

Pretty straightforward.

We see some portfolios in the BDC market that have 17, 18% PIC debt.