Traci Alloway

How exactly did we get here?

I think it was a willingness of these sponsors to come in and say, all right, I'm going to pay 16 or 17 times enterprise value to EBITDA for this business.

And I'm going to put in an unusually large check.

Let's say 40% of that I will put in in equity instead of the typical 20%.

So historically, people have in the LBO space, they were coming to the high yield market saying, we'll put 20% down, finance the other 80%.

If they go to the private credit guys and say, well, we'll put 40% down if you'll lend to us on the balance.

We love this business at 16 times.

And I think they potentially persuaded a lot of these

lenders to get a little bit too far out over their skis in terms of the amount of leverage that they were willing to extend.

And as a private credit lender, if it's just you or if it's just you and one other, you can be a lot more creative in terms of structure.

And I think they also took on this willingness to say, OK, well, you can't afford to pay me this interest.

So how about if we pick it?

Because if we pick it, my investment will grow and it'll give me sort of

quasi-equity-like feel because it's getting bigger.

So that's kind of intriguing to me too.

So I think there was a little bit of lender overzealousness.

I think there was a competitive pressure.

I think that they fell prey to some of the sponsors' willingness to overpay for some of these businesses.

So when I hear secured credit that might not have that much security behind it, as we just discussed with the example of the software companies, and then when I hear increasing amounts of leverage on the issuer side, but also on the fund side because you have private credit funds that use leverage to increase their returns, and then when I hear illiquidity mismatches between a publicly traded BDC and the underlying assets,

All of those sound very familiar from financial crisis history and have certain negative connotations around them.