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
Bottom Line:
The opportunity is asymmetric:
- Downside: 30–70% losses in weak balance sheet companies
- Upside: capital rotation into cash-generating, asset-backed leaders
