Title:   Credit Enters Snapcount, Part 3 — Private credit just had its Bear Stearns Funds moment
Show:    Paulo Macro (Substack) — paid
Guest:   Paulo Macro ("Cloudbear")
Date:    2025-NOV-17
URL:     https://paulomacro.substack.com/p/credit-enters-snapcount-part-3
Length:  written post (no timestamps)
Note:    Back-filled post (processed 2026-JUL-07; predates most of the source's archived posts). Argues private credit just had its April-2007 Bear Stearns-funds moment: Blue Owl (OWL) folding an unlisted fund (BOCCII) into its listed OBDC at a -20% NAV discount = forced price discovery, "public is the exit for private." Body reproduced for personal study; Substack chrome removed.

As mentioned in this morning's chat thread opener, the world of private credit just had its April 2007 Bear Stearns funds moment, and has officially entered Snapcount which we laid out a month ago here in describing exactly how contagion would spread due to the divergence between public and private vehicles which own very similar assets. If you missed it, you really should read this link first — this playbook is unfolding almost exactly as described, and a major asset manager's attempt to address their problem has actually made the broader situation far worse.

For those who were not in the business then, two Bear Stearns funds ran into problems early in the US housing collapse. The Bear Stearns High-Grade Structured Credit Fund was launched in 2003 targeting "highly-rated" mortgage-backed securities (MBS) and collateralized debt obligations (CDOs), with 90% of its holdings intended to be rated AAA or AA. The Enhanced Leverage Fund, as its name implies, employed even greater leverage on similar assets. As cracks appeared in early 2007 and the underlying subprime mortgage market began to unravel, the funds unexpectedly announced losses in April 2007, with the High Grade fund copping to a -5% loss while the Enhanced Leverage Fund dropped -19%. By June 2007, Bear Stearns was forced to commit up to $3.2 billion to bail out the High-Grade Fund while frantically negotiating with other banks to shore up the Enhanced Leverage Fund. On June 7th, Bear Stearns announced a suspension of investor withdrawals as the funds' liquidity evaporated and redemption requests flooded in. The funds filed for bankruptcy on August 1st, and over $1.6bn of investor funds were largely wiped out. The rest is history.

This weekend the FT reported that renowned alternative asset manager Blue Owl (OWL) plans to dilute private credit investors in the $1bln unlisted fund Blue Owl Capital Corp II Fund to the tune of -20% (interesting number when you recall the Bear Stearns Enhanced Leverage Fund loss), after receiving 6% in redemption requests for the last quarter. Blue Owl is a NY-based $300bln alternative asset manager with a high profile in private credit. Ironically, co-CEO Marc Lipschultz had a public spate with JPM CEO Jamie Dimon just a month ago, suggesting Dimon should mind his business in talking about the Tricolor and First Brands fraud blowups and look to the banks for "cockroach" risks in private credit (see Blue Owl Chief Points to Bank Loans for Dimon Cockroach Warning)… I don't know about you, but when I saw that, I immediately thought back to my Shakespeare — "the lady doth protest too much, methinks."

Instead of meeting redemptions, Blue Owl has announced it will merge the unlisted fund into its publicly listed Blue Owl Capital Corp (OBDC), which as we discussed in Snapcount likely has very similar assets, except the publicly listed OBDC is trading at a discount of -20% NAV. And so the private investors will lose -20% as redemptions are suspended until the private fund is folded into the public fund. Voila… we have price discovery in private credit.

Public is the exit for private.

Thanks to OWL, the private credit world just got their Bear Stearns Enhanced Leverage Fund April 2007 moment. At this point every high-net worth investor, financial advisor, and yes even institutional manager should be thinking the same thing:

"If this could happen over there in BOCCII, couldn't it happen to me over here in Fund XYZ?"

"If I can't get even a sliver of my money out of private credit without this sort of exit tax, maybe I should try to redeem as soon as possible, or at least refrain from any future commitments??"

And that's the problem — even if investors don't start to panic and redeem (remember, if you're out the door first, that's not called panicking), private valuations (and AI capex funding) hinge on fresh inflows.

To wit, AMZN announced a $13bln bond offering this morning. Here's the latest on the major hyperscaler bond prices…heavy.

I don't want this note to blow out into a 20-minute read, but I have other charts to share and will be back soon with more on liquidity, the Fed, and positioning.

I guess all I'm saying is: stay frosty...

As always, kindly yours,

Paulo aka Cloudbear