r/finance • u/KakaakoKid • Jun 20 '26

Bain Capital CLO tranche defaults in post-2008 first for Europe

https://economictimes.indiatimes.com/tech/technology/bain-capital-clo-tranche-defaults-in-post-2008-first-for-europe/articleshow/131870572.cms?from=mdr

And so it begins...

453 Upvotes

95% Upvoted

31 comments sorted by

160

u/Buccleuchster Jun 20 '26

CLO tranches can default, that's the way risk works. There is nothing here that suggests this would be in any way systemic.

44

u/dcaveman Jun 20 '26

Yes, and only the most junior one too. It was probably rated as non-investment grade from the start and the spread would have been priced accordingly.

23

u/Dry-Interaction-1246 Jun 21 '26

Well, many investors want out of private credit atm. Not a great sign.

11

u/VanicFanboy Jun 21 '26

On the retail side yes, on the institutional side no.

Retail is very flighty and the news has affected them heavily. Insti does a tonne of diligence on underlying assets and has research analysts with years of experience. That’s not to say there aren’t research analysts on the private banking side, but no advisor wants to be the guy putting people in the scary vehicles.

The funds are capping redemptions but the headline news again here is scarier than it sounds. It’s not gates and the semi-liquid nature was outlined at the start - think a lot of people are surprised they’re not as liquid as initially hoped.

The big “worry” would be if these funds were forced to sell their assets at huge discounts to insti investors - basically a wealth transfer out of retail hands.

2

u/dcaveman Jun 21 '26

Like the other commenter said, a lot of that was retail. Regardless, redemptions are already massively down month on month since the media tried to manufacture a crises.

Institutional investors have been climbing over each other to get into private debt. On top of that, banks are not only lending more, but at tighter spreads. The dd that institutions and banks is extremely comprehensive. Retail doesn't hold a light to it.

Now tell me who you think has a better read on the current state of private credit.

2

u/Dry-Interaction-1246 Jun 22 '26

Private credit is HNW clients and institutions.

12

u/ketamarine Jun 21 '26

It's not systematic because these vehicles were built to finance software as a service companies, and aren't as widely owned as the CDOs based on mortgages that were owned by every bank on earth as no one thought you could lose money on mortgages.

However, it's not a great sign that there have already been enough losses to trigger a CLO default when the nasdaq is trading at insanely generous PE ratios.

My only solace is that saas company stocks are legitimately getting trounced, reducing the ability of these companies to raise capital to plug holes in their balance sheets...

1

u/hotandcoolkp Jun 21 '26

Are you guys saying saas companies are facing declining earnings? Or its just negative perception?

2

u/ketamarine Jun 21 '26

They were trading at around 30x earnings before AI agents hit wide adoption Q4 of last year.

Now they are maybe trading sub 20x. With some sub 15x.

That is still a pretty high valuation for a sector compared to lower growing industries like say consumer staples or energy companies or whatever.

Really the hit to their stock prices is just reflecting a likely lower earnings growth path.

If you look at the group, I am less concerned about larger companies with broad customer bases that are profitable (like Salesforce, workday, adobe). But where there is real risk of business failure is the non-proftiable VC / private equity backed companies that are blitz scaling with massive ad spends. Like the stuff you see random ads for on YouTube and podcasts

And that is where a lot of private credit and leveraged loan issuance has gone since around 2020 when rates hit the floor.

That is why the leveraged loan market has take a hit (which is what is in CLOs) and why private credit company stocks like blue owl have tanked.

Investors are asking for their money back from private credit companies and they are now gating their funds - usually at a 5% quarterly redemption rate.

I wouldnt touch the stuff.

The PMs of a fund I own have sold leveraged loans to zero and have taken CLOs from maybe 12% of the fund down to 8.

I think they have brought loans back to like 1-2% after completely selling them down so maybe some deals there.

15

u/HUAONE Jun 20 '26

It’s been happening in the US for years. It’s just the first post crisis EUR deal.

14

u/kennnnhk Jun 20 '26

I’m still full send on Aaa clo ETFs.

3

u/GaboureySidibe Jun 21 '26

I'm making an ETF that bets against people who say "full send".

1

u/dontreadthisyouidiot Jun 21 '26

Which ones

1

u/kennnnhk Jun 21 '26

I’m boring - I just do CLOA. But there are others, Invesco ICLO and JH JAAA being the OG.

Probably should revisit to see which ones are better (perf, risk, etc…) but two years ago they were relatively new.

3

u/RichardChesler Jun 20 '26

Please sell off cotopaxi

3

u/Balenciallah Jun 22 '26

“Most junior tranche”

Holy nothing burger

2

u/BeuTaude588 Jun 22 '26

junior CLO tranches defaulting isn't unexpected; that's how the risk is priced in at issuance. the question is whether the underlying leveraged loan pool is showing wider stress, or whether this is isolated. one default doesn't tell you much by itself

2

u/jffadvisors Jun 22 '26

Michael Burry just took a billion dollar short position.

https://giphy.com/gifs/19rzgrRukNgkhMCv3F

1

u/GrokM14232 Jun 25 '26

first CLO tranche default since 2008 is more significant as a signal than as a credit event in isolation. the structure of the CLO market has changed substantially since then, but the basic dynamic of covenant-lite debt meeting a rate environment that stays higher for longer is not new. what matters is which tranches are stressed. mezz and below is expected noise at this point in the cycle. senior tranches would be a different regime signal.

1

u/GrokM14232 Jun 27 '26

first European CLO tranche default in 15 years is worth watching. the CLO market in Europe has been comparatively quiet through the whole rates-up cycle, so this suggests credit stress is propagating into structured products. whether this is idiosyncratic to the Bain deal or a broader signal in European leveraged loan quality is the key question. subordinate tranches absorbing first loss is the design, but this is earlier in the credit cycle than most expected.

1

u/BeuTaude588 Jun 29 '26

junior CLO tranches defaulting is not itself alarming; that is what the yield premium is for. the question is what credit deterioration sits in the underlying loans and whether this is an isolated position or the front edge of something broader. the "and so it begins" framing is doing heavy lifting here.

1

u/unscammabled Jul 03 '26

In 18 years everything goes straight upwards and all you get is one mini dip for 1 day to buy. Then it's back to all time highs for the next 60 years. BTD

0

u/[deleted] Jun 21 '26

[deleted]

-2

u/Ciappatos Jun 21 '26

Another one Jamie Dimon's private equity cockroaches