Downside Case

Huge investment cycle

@boreas_eth Cheaper leverage than most individual investors could get. The fact that these funds are levered (at low rates) is a feature not a bug

@DownsideCase This guy is just saying anything for the sake of it at this point. Calling out cost of debt as an expense is bananas if anyone understands how leverage works.

If you read the footnotes on the fact sheet, this is disclosed: “CCLFX has a total annual expense ratio of 3.27%… includes acquired fund fees & expenses (AFFE) est. at 0.25%, along w/ mgmt fees (1.00%), other expenses (0.27%), and interest payments on borrowed funds (1.75%)”

@kieranwgoodwin Yes

Can we all agree that $FSK should be using proceeds from loans maturing to buy back some stock? $FSK is trading at 48.2% of NAV. Throw the shareholders a bone. Do the right thing! 40 Act Funds are NOT permanent capital.

@NickNemo17 The PIV sleeve is where the FoF fees are and it’s the total fee load for those funds. CCLFX doesn’t charge an incentive fee. CCLFX TER actually lower than industry avg. They do aggressively mark the portfolio of directly held loans, so you’re not wrong there

@DownsideCase I have discovered that but its on the whole (not the PIV sleeve) and incentive fees are not included.

cliffwaterfunds.com/data/pdfs/lite….

@reganteague @LeylaKuni Mr Buffett would argue otherwise and say price fluctuates around intrinsic value

@LeylaKuni The value of something is derived only by what someone else is willing to pay for it. A hard lesson new people to the PC universe are learning right now.

This one is an interesting case study on what the price of liquidity is. For background: OBDC II attempted a merger with OBDC late last year. Long story, but investors in OBDC II would have taken a 20% haircut (the merger was cancelled) The fund manager is now guiding to fund liquidation (but keep in mind, the verbiage in SEC filings is pretty open) The fund sold $600M in loans (the crown jewels of the portfolio), and is making a distribution of about 30% to all investors. Enter Saba/Cox with their tender offer (~33% discount to NAV) for ~7% of outstanding shares. According to Blue Owl: "Cox and Saba's offer price is inadequate, arbitrary and substantially undervalues OBDC II's assets and ongoing access to liquidity." LOL Three things here: 1. the remaining portfolio is not all unicorns and roses 2. the offer is voluntary - meaning, investors who want to stay in the fund don't have to sell at this price 3. I bet the 20% discount to NAV via merger with OBDC (which, again, didn't happen) is looking fairly attractive in retrospect.. I did the math to estimate the value of the remaining assets (and see what investors stand to gain - or lose - by staying in the fund vs. tendering the offers) You can read it here: open.substack.com/pub/accredited…

@LeylaKuni @AcaciaCap When they started the process it was

@AcaciaCap they should have attempted merging when OBDC was trading at NAV

She yells when they try to give investors liquidity because public markets are 20% discount to NAV. Now she says 20% wasn’t so bad. She complains that they sold assets to repay investors. What should they be doing?

While folks fall all over each other to claim private credit losses will be a systemic crisis, the losses math just doesn't work out. And importantly, the vast majority of the risk is held by unlevered investors vs 30:1 levered banks back in '08. x.com/BobEUnlimited/…

@IDefsHateYou Yes! Thank you

@DownsideCase gell mann amnesia (sorry if you were being sarcastic)

Lot of people on this site commenting on private credit who clearly are not actually in the market. Makes me wonder about other topics I’ve followed where I think I’m getting quality intel but actually could just be tourist talk. Think there’s a term for this but can’t place it

@HedgingNapoleon What’s a binary tranche?

@DownsideCase I'm struggling with your unitranche moniker as I was trained on binary tranches. As for your concern over private credit expertise, these same folks never worked on Wall Street and before this they were experts on World Cup/Olympic skiing, ACLs and of course Covid experts.

@jay_21_ Their

@jay_21_ They’re rep will definitely survive

Can cd&r’s reputation survive? Multi color, cornerstone etc It’s getting pretty ugly

@brianj345 @NickNemo17 Pluralsight was unwound too. Haven’t seen any LMEs done away from that one in private credit

@NickNemo17 All BSL LMEs in liquid structure. Think Pluralsight is the only ever example of LME in private credit and that was sponsor driven. You have no idea what you’re talking about.

$CCLFX. $32.5 billion. The largest interval fund in America. In 2021, ZERO borrowers were paying interest in IOUs. By September 2025: 188. And they thought: no losses, no redemptions. Read this. Cliffwater tells investors: "96% first-lien senior secured." "10% distribution yield." "Minimal losses." I parsed every position in their N-CSR filings on SEC EDGAR. All of them. I cross-referenced borrower names across every semi-annual filing. At least 53 borrowers were cash-pay in earlier filings. They used to pay cash interest. Then they couldn't. The loan was amended to PIK to avoid a technical default. Amend and extend. Cliffwater marks most at par. $1.24 billion. Five names that tell you everything: 1. WEALTH ENHANCEMENT GROUP — manages $136B in client assets. Can't service interest on its own subordinated debt. Holds a $23M tranche at 15% PIK — zero cash on that tranche. CW blended mark: 82c. My mark: 42c. The wealth managers can't manage their own leverage. 2. APEX SERVICE PARTNERS — HVAC rollup, 200+ companies, 43 states. Was cash-pay 2021-2024. Now holds 14.25% PIK sub-debt tranches paying zero cash. CW: 90c. My mark: 39c. Your AC repairman's parent company is paying its subordinated lenders in IOUs. 3. CPF DENTAL — dental chain. SOFR + 9.25% plus a 4.25% PIK component. All-in rate: ~18%. Maturity: December 31, 2025. The loan was due three months after the filing date. CW marked it at 99.7 cents. My mark: 64c. 4. PPV INTERMEDIATE HOLDINGS — healthcare. The name is the evidence: "Intermediate Holdings" = structural subordination. Sub debt. 13.75% PIK tranche, zero cash. CW: 97c. My mark: 37c. Behind SBA loans, revolvers, equipment lenders, tax liens, pension obligations, and every operating company creditor. Sixty cents of overstatement on a tranche paying nothing. 5. iCIMS — HR tech/SaaS. Was cash-pay from Mar 2022 through Sep 2024 in every filing. Now 10.07% PIK. The software company can't pay its interest bill. CW: 96c. My mark: 84c. Generous. Very generous. Even with a modest haircut, that's a confirmed credit event they won't recognize. The playbook: Borrower can't pay (SOFR went 0% to 5.3%) --> Amend to PIK (no default recorded) --> Extend maturity --> Mark at par (97% Level 3, no market price, Cliffwater sets its own marks) --> Book PIK as income ($57M of PIK interest in six months ended Sep 2025 alone) --> Collect fees Why they do it — the incentive: Cliffwater charges a 1% annual management fee on net assets. At $32.5B, that's $325 million a year. Every dollar of markdown reduces the fee base. Permanently. The incentive to not mark down is $325M/year. And here's the fund-of-fund layer they don't talk much about: six of their top ten holdings are CLOs, BDCs, and fund vehicles that charge their own fees underneath. Silver Point CLO ($1.4B), Barings Private Credit Corp ($919M), BlackRock Shasta CLO ($600M), Golub Capital, Blue Owl, AGTB. Your grandmother is paying Cliffwater 1% to invest in other funds that charge another 1-2%. Fees on fees on fees. On assets marked by the people collecting the fees. Cliffwater reports a non-accrual rate of 0.42%. I identified at least 53 borrowers that converted from cash-pay to PIK — borrowers that stopped paying cash interest. That is not 0.42%. That is systematic restructuring to avoid classification. Amend the loan before it hits non-accrual, and the number stays low. "First-lien senior secured" — on hundreds of holdco/intermediate/bidco positions, the collateral is equity of the subsidiary. Not the factory. Not the receivables. Not the cash. In liquidation: IRS eats first. Pensions eat. SBA eats. Revolvers eat. Equipment lenders eat. Employee claims eat. MCAs eat. Trade creditors eat. Then maybe the holdco "first lien" gets the scraps. They call that 96% senior secured. 97% of this fund is Level 3 — no observable market price. Cliffwater determines the value. Cliffwater collects the fees. Cliffwater reports the yield. And investors see 10% distributions and think it's safe. Remember that they went after unsophisticated investors. Retirement accounts. Your grandmother's financial advisor put her in this. First out gets the most out due to Cliffwater's bogus marks. Redemption requests just hit 14% in Q1 2026. The fund caps quarterly repurchases at 7%. This is the beginning. Every data point from their own N-CSR filings on EDGAR. CIK 1735964. Verifiable.

@brianj345 @NickNemo17 Was probably a refi that right-sized the 1L to manage interest expense burden and not a restructuring. Odd to get 14% PIK pref back in a restructure

@NickNemo17 I’ve seen thousands of private market transactions. Never once have I ever seen a first lien lender ever be primed by anyone other than themselves. It’s a concept that I would not bring up again - people will not take you seriously and realize you have no financial acumen.

@LeylaKuni Nice shoutout! Congrats

Yours truly was quoted in this article 😎 In the coming quarters, no adviser will be a hero to recommend private credit allocation to evergreen vehicles, given the headlines.

@AuricVortex Fair, they did gate (but also returned 30% via portfolio sales)

@DownsideCase Did blue owl not gate investors on its non traded BDC?

No one has gated a fund (yet). But that won’t stop the doom loop. The narrative is out of the barn already

This is true, most lenders aren’t well positioned to control the board of a business. Decent amount of PE firms aren’t either though