INVESTOR BEWARE REPORT
Stocks We Are Avoiding Due to the Coming Private Credit Unwind
(Strategic Risk Brief – 2026–2028 Cycle)
Ed Note:
Although individual companies are mentioned here, it is entire sectors that we are avoiding.
If a company needs refinancing to survive —
you do not want to own the equity!
🧠 1. Executive Thesis
A major structural shift is underway:
The unwinding of the global private credit (“shadow banking”) system
Over the past decade:
- Private credit filled the gap left by traditional banks
- Trillions were deployed into middle-market, leveraged companies
- Many businesses became dependent on rolling debt, not repaying it
Now:
- Interest rates remain structurally higher
- Liquidity is tightening
- Debt maturities are approaching
👉 This creates a refinancing cliff between 2026–2028
⚙️ 2. The Mechanism of Collapse is Critical to Understand
The system works like this:
Private Equity
→ finances companies using →
Private Credit (non-bank lenders)
→ companies rely on →
Refinancing instead of repayment
When stress hits:
- Debt cannot be refinanced
- Interest costs exceed cash flow
- Equity becomes residual (and collapses)
- Creditors take control
👉 Take Note>>>Equity holders are first-loss capital
📉 3. The Refinancing Wall (2026–2028)
This is the most important timing factor:
- Large volumes of low-rate debt issued in 2020–2022
- Must be refinanced at much higher rates
- Many companies cannot absorb this increase
👉 Result:
- Margin compression
- Earnings collapse
- Equity dilution or wipeout
🔴 4. Tier 1: Extreme Risk (50–70% Downside Potential)
Profile:
- Highly leveraged
- Weak or unstable cash flow
- Dependent on continuous refinancing
🚗 Carvana
- Turnaround relies on capital markets access
- Historically overleveraged
- Highly cyclical demand
👉 Equity survival = refinancing availability
🛋️ Wayfair
- Low margins + high operating leverage
- Consumer discretionary exposure
👉 Breaks quickly in tightening liquidity
📡 Dish Network / EchoStar
- Massive debt loads
- Ongoing capital intensity
- Weak free cash flow
🎬 AMC Entertainment
- Structurally impaired capital structure
- Dependent on financial engineering
🚴 Peloton
- Demand volatility
- Cash flow weakness
- Requires continued financing flexibility
🔴 5. Tier 2: High Risk (40–60% Downside)
🧠 Critical Insight:
Private credit is heavily concentrated in software and business services
🤖 C3.ai
- Revenue inconsistency
- Valuation driven by narrative
🧩 Asana
- Unprofitable
- Slowing growth
⚙️ UiPath
- Margin pressure
- Enterprise spending sensitivity
📊 Freshworks
- SMB exposure (first to contract)
- Weak pricing power
👉 These were often financed based on:
- Aggressive growth assumptions
- Low-rate environments that no longer exist
🟠 6. Tier 3: Moderate Risk (30–50% Downside)
🏢 Commercial Real Estate (Refinancing Epicenter)
🏙️ SL Green Realty
🏢 Vornado Realty Trust
- Office demand structurally impaired
- High refinancing needs
- Declining asset valuations
👉 CRE = one of the largest private credit exposures
🏭 Leveraged Industrial Rollups
🔧 Hillman Solutions
- Private equity legacy structure
- Acquisition-driven growth
- Debt-heavy balance sheet
🟡 7. Tier 4: Early Warning Signals (“Canaries”)
These are not collapse candidates—but they signal systemic stress:
💼 Ares Capital
💼 Blue Owl Capital Corporation
💼 Blackstone Secured Lending
Indicators:
- Trading below NAV
- Rising non-performing loans
- Increased credit stress
👉 When these weaken → underlying borrowers are already failing
📊 8. Risk Classification Framework
| Risk Tier | Company Type | Examples | Expected Drawdown |
|---|---|---|---|
| 🔴 Extreme | Refinancing-dependent | CVNA, W, DISH | 50–70% |
| 🔴 High | Unprofitable SaaS | AI, ASAN, PATH | 40–60% |
| 🟠 Moderate | CRE / industrial | SLG, VNO | 30–50% |
| 🟡 Signal | Credit lenders | ARCC, BXSL | 20–40% |
🚨 9. Key Indicators to Monitor (Timing the Unwind)
1. Increase in PIK (Payment-in-Kind) loans
→ Companies cannot pay interest in cash
2. BDC discounts to NAV widen
→ Market pricing in losses
3. Redemption restrictions appear
→ Liquidity mismatch exposed
4. Default rates rise in middle market
→ First stage of systemic stress
🧠 10. Strategic Investor Framework
❌ What We Are Avoiding
- Companies reliant on refinancing
- Narrative-driven SaaS without profitability
- Leveraged consumer cyclicals
- Office-heavy real estate
✅ What We Favor (Aligned with our Strategy)
- Strong balance sheets (net cash)
- Hard asset exposure
- Pricing power businesses
Examples of our current positioning that align well:
-
Equinor
→ Energy + cash flow + real assets (Gold miners like SSRM) -
AI infrastructure leaders like Broadcom
→ Cash-rich, not credit-dependent
⚡ 11. The Core Insight (Most Important Section)
This is not a typical downturn.
This is a balance sheet crisis disguised as an equity market rotation
The reality:
Many public companies today are:
“Equity shells supported by functioning credit markets”
When that support weakens:
- Equity is repriced violently
- Credit takes control
- Capital structures reset
🧭 12. Final Takeaway
This is not about avoiding volatility.
It is about avoiding structural failure risk.
⚠️ The Rule:
If a company needs refinancing to survive —
you do not want to own the equity
Ed Note:
Many of the private equity firms financing these companies (that are dependent on that financing) were created in times of near zero interest rates. The expectation was that those rates would stand for some time. That, my friends, is not what is happening.
As rates rise, so too will private equity entities begin to wobble as their investors demand a return of their money, and there won't be enough to go around. Even now, some are attempting to get their money out, only to be told by some private equity firms that they can only get 50%. This could start a stampede which will greatly affect companies (like the ones mentioned) who depend on that financing.
June 30th is when private equity funds must report and mark their numbers to "fair market". Thus beginning a downward spiral (For companies depending on that financing)
Investors beware!
Bottom Line:
The opportunity is asymmetric:
- Downside: 30–70% losses in weak balance sheet companies
- Upside: capital rotation into cash-generating, asset-backed leaders
- We are adjusting our portfolio accordingly
