The loan tape or the workout record: which one actually tells you how a debt fund behaves in a bad year

Tape, and it isn't close for me. A workout record is a sample of maybe eight to fifteen resolved credits at most funds, half of them from a different rate environment, and every one of them got resolved by a team that has since turned over. That's an anecdote wearing a spreadsheet. The tape is 200 line items I can sort, bucket by origination quarter, and stress at minus 15 percent on collateral. When I did that on a fund pitching 9.5 net, 31 of the loans were originated in a nine month window in 2021 and they were 40 percent of the balance. No workout story would have told me that.

The workout record is the only part I trust. When a bridge loan on a 60 unit value-add goes back, someone has to hire a manager, deal with the half-finished units, and carry the taxes and insurance for a year. Managers who have never done it write the recovery assumption as a haircut to appraised value and stop there. The ones who have done it hold reserves for the eleven months of carry, because that's where the recovery actually goes. You can see it in whether they even have an asset management function or just a servicer on contract.

Basic question from the cheap seats: when you say tape, is that a document a fund will actually hand a prospective investor, or is it something you piece together from the quarterly reports?

sextant, I'd argue both of your camps are downstream of one document that nobody in this thread has named yet, the credit policy. Ask for it, then ask for three or four actual credit memos with names redacted. The tape shows you what got approved. The policy plus the memos show you what the exceptions process looks like, and how often someone signed off outside it. A fund whose memos all read like the policy has discipline. A fund with a 20 percent exception rate on LTV is telling you the stated maximum is decorative. The workout record then tells you what they do when the exception loans go sideways.

If most of the new debt funds launched in the last two years, how would any of them have a workout record to look at?

The thing that snagged me in the one set of documents I've read all the way through was the definition of a modification. Two extensions at the manager's discretion didn't count as one, so a loan could be 18 months past its original maturity and still show up on the performing line. I couldn't tell from the tape alone whether that had happened, because the tape only carried current maturity, not original.

ledger, the sample size point is fair and it's the strongest version of your side. But I've seen the reverse failure twice. A tape that stress tested fine, weighted LTV 63, geography spread over nine states, and the fund still bled because the manager's answer to every problem loan was a six month extension and a rate bump they capitalized rather than collected. The tape at the next reporting date looked almost identical. Interest was accruing, nothing was cash. vellum's point is the mechanism, and it's exactly why I can't put the manager in the rounding column.

tender, the credit policy plus memos is the best answer here and it's the thing I've had the hardest time getting. Two of the four sent it. One sent a two page summary that was really a marketing document. The fourth said it was proprietary, which I treated as its own answer.

You're both underweighting the layer above the loans. Read the warehouse or repo facility terms and the mark policy in the same sitting. A fund running a 60 percent advance rate against its book has a lender who can reprice or margin call on collateral marks the manager doesn't control, and that lender gets paid before you do in every scenario. I've seen a fund with a genuinely conservative tape and a facility with a covenant tied to a portfolio-level default percentage. Cross that line and the fund is a forced seller of good loans to cure it. At that point neither the tape nor the workout record is driving your outcome.

What I ask for now is a loss list by origination vintage, every resolved credit since inception with original balance, months to resolution, and net recovery including carry and legal. Half of funds don't have it in a form they can send, which is information. The two that produced it, one had a 94 cent average recovery over an average of seven months, the other averaged 71 cents over nineteen. Same stated LTV band. That single table did more for me than three calls.

The practical problem for anyone writing a small check is that none of this gets handed over. My allocation is not big enough to get a loan tape or a credit memo, so I get the quarterly summary and a call with someone from investor relations. canton's loss list request is the one I'm going to try next, because it's small enough to be answerable and revealing if they refuse.

Nobody has said who services the loans. Is that usually in-house at these funds or contracted out, and does the answer tell you anything about how the workouts will go?

beacon, that's the part I've been circling for a different reason. Special servicing and REO management for these funds looks like a service business with real barriers, because the fund managers who grew fast on the fundraising side have books that will need hands and no staff to put on them. trellis, when a fund calls you on a taken-back asset, are they calling early or after it's already been sitting empty for a season?

vellum found the clause that matters most and I want to add the second half of it. Look at how the incentive fee accrues. If the promote calculates on accrued interest rather than cash received, then extending a stressed loan and capitalizing the rate bump increases the manager's number in the same quarter it increases your risk. That alignment problem sits in the LPA, not in the tape, and it is worth having your own counsel read the waterfall before you sign anything.

Reading this list, the tape tells you what they bought and the documents tell you what they're paid to do next. I'd want the documents.

The geography line in these tapes is the part I don't trust at all. Nine states sounds diversified until you notice six of the loans sit in exurban markets that all price off the same commuter economy, and the small town collateral has a buyer pool of maybe four people in a good year. Spread on a map is not spread in demand.

sextant, the capitalized extension example moves me more than the sample size argument moves you, I'll give you that. So my position shifts to this: the tape tells me whether a bad year is survivable, and the workout record tells me whether I'll be told the truth about it while it happens. If I only get one pass I still take the tape, because a book written at peak values with a thin cushion can't be managed out no matter who's holding it. fathom's facility covenant point is the one I hadn't priced and I'm going back through two PPMs tonight.

lantern, almost always late. The call comes after a receiver has been in place for a few months and the utilities have been off. Funds with an internal asset manager call at the first missed interest payment, and the difference in what the asset looks like six months later is enormous. beacon, servicing is usually contracted, and the contract rarely covers anything past collections and notices.

Thanks, that answers it. So a fund that won't show a tape or a loss list but will show a glossy return chart is telling me where its confidence sits.

sable, on new entrants you look through the fund to the team. Someone on that credit committee has resolved loans somewhere, and you ask where, in what years, and at what average recovery. A first-time fund staffed by people who ran a bank's special assets group through a downturn has a workout record, it just isn't printed in the fund's own materials. A first-time fund staffed by people who have only originated in a rising market has none, and the pitch usually leans hard on the segment's growth numbers instead.

That's the clearest version of it I've read. So the question is whose downturn they were in, not whose fund it is.

Before this thread I figured a debt fund was basically a yield with a manager attached. What I'm taking out is that the interesting numbers are original maturity versus current maturity, cash interest versus accrued, and the advance rate on whatever facility sits above me. Still confused about the mark policy fathom mentioned, but at least now I know what to ask for.