Having worked in IB / PE my whole career (both buying & selling businesses and distressed debt, primarily in the middle market) it is always fun when my area of domain hits the front page and I can read the confident opinions folks have on my industry.
I think most people in this thread are missing the boat.
First, it’s important to realize that “default” does not imply wipeout. Default just means that you’ve violated a credit agreement, and that can be solved many different ways. Sometimes it’s solved by the sponsor restructuring the debt (injecting equity, asking for covenant/interest relief); sometimes it’s a true Ch 11 bankruptcy; in very rare cases, it can be a true Ch 7 liquidation. But even in those destruction-of-value scenarios, first-lien recoveries run 50-70% of “par value” borrowed. Lenders are smart, their job is to underwrite these deals, and they’re compensated for this with healthy interest rates - typically S+500-650 plus fees, which comes out to 10–12% unlevered returns. So they are basically pricing junk bonds, and in exchange get senior secured risk with real covenants around what the business can / can’t do.
Second, the myth that PE firms can just saddle a company with debt at the lender’s expense with no skin in the game and walk away with a profit while the company files for bankruptcy is hilarious, in part because it obviously doesn’t hold up to the slightest bit of scrutiny. The typical PE firm is buying a middle market business for 10-12x EBITDA on average. In today’s world, lenders will usually let you put 4.5-5.5x EBITDA on the business as leverage (in the ZIRP era, you could push things up closer to 7x, sometimes above that if it’s a stellar business). So on a typical 10x deal with 5x debt, 50% of the capital structure is PE firm equity which gets wiped out first before the lender loses a dollar. If that happens, the PE fund’s investor returns crater, which means no more Fund II/III/IV, which means no more fees for them to generate.
(As an aside, the typical “fees” paid by portfolio companies to the PE firm are, at least in modern limited partner agreements, largely offset against management fees and recaptured by the fund’s investors. The PE firm is not getting rich off these fees, at least not anymore.)
Third, private credit is not your local commercial bank. Many of the largest private credit firms are actually PE firms themselves - e.g., Apollo, Ares, and Blackstone, who are all known as “private equity” have actually become more valuable to the public investor community due to their private credit business. These are not sadsack regional banks and credit unions getting hoodwinked by New York finance elites. In many cases, they are the same firms, with the same resources (in-house restructuring / “workout” teams, portfolio ops, etc.).
It’s important to realize that private credit funds raise capital from institutions and HNW individuals with locked-up commitments - it is the exact same investor base as PE, and fundamentally a very similar business, they just invest at a different part of the capital stack. Because of this, risk of contagion is very low. Bank exposure to private credit is something like 1.5% of their portfolio - it is tiny. The extent of the blowback will be that a pension fund investing in alternatives has a poor return in one asset class across a dozen - it’s not systemic risk.
Finally, what IS true is that pre-ZIRP portfolios and software-heavy credits (something like 15-20% of leveraged loans outstanding) are in a tough spot. These businesses are either failing or they have too much debt that has “re-rated” to higher interest rates as interest rate hedges fell off. What happens from here is that the companies with structural issues in their business model will cease to exist (e.g., certain SaaS businesses). This happens all the time - it’s capitalism. But the good businesses are not going to disappear because of a bad cap structure - they will just get recapitalized.
It was fascinating to see OpenAI’s gaslighting in action last week. Signing their deal with the DoW and then announcing it so publicly clearly had the goal to (a) portray Anthropic as unreasonable actors that couldn’t come up with a “safe” solution like OpenAI and (b) take away all the leverage Anthropic had in the contract negotiations. Clever (in a Machiavellian sort of way) but still can’t understand why they did it so blatantly — literally hours after Anthropic was designated persona non grata by the government. Clearly this has backfired in a massive way.
In a way, I admire Dario’s stance and having the backbone to stand up to a government that is so happy to punish, legally or illegally, those that disagree with them. I certainly wouldn’t have the bravery (or stupidity) in his position — which frankly makes me happy that he’s running Anthropic and not someone like me…
Could you expand on your point re more sophisticated prompting?
I have found it hard to replicate high quality human-written prose and was a bit surprised by the results of this test. To me, AI fiction (and most AI writing in general) has a certain “smell” that becomes obvious after enough exposure to it. And yet I scored worse than you did on the test, so what do I know…
For flash you can get much better results by asking the system to first generate a detailed scaffold. Here's an example of some metadata you might try to generate before actually writing the story: genres the story should fit into; pov of the story;
high level structure of the story; list of characters in the story along with significant details; themes and topics present in the story; detailed style notes
From there you have a second prompt to generate a story that follows those details. You can also generate many candidates and have another model instance rate the stories based on both general literary criteria and how well the fit the prompt, then you only read the best.
This has produced some work I've been reasonably impressed by, though it's not at the level of the best human flash writers.
Also, one easy way to get stuff that completely avoids the "smell" you're talking about by giving specific guidance on style and perspective (e.g., GPT-5 Thinking can do "literary stream-of-consciousness 1st person teenage perspective" reasonably well and will not sound at all like typical model writing).
I think most people in this thread are missing the boat.
First, it’s important to realize that “default” does not imply wipeout. Default just means that you’ve violated a credit agreement, and that can be solved many different ways. Sometimes it’s solved by the sponsor restructuring the debt (injecting equity, asking for covenant/interest relief); sometimes it’s a true Ch 11 bankruptcy; in very rare cases, it can be a true Ch 7 liquidation. But even in those destruction-of-value scenarios, first-lien recoveries run 50-70% of “par value” borrowed. Lenders are smart, their job is to underwrite these deals, and they’re compensated for this with healthy interest rates - typically S+500-650 plus fees, which comes out to 10–12% unlevered returns. So they are basically pricing junk bonds, and in exchange get senior secured risk with real covenants around what the business can / can’t do.
Second, the myth that PE firms can just saddle a company with debt at the lender’s expense with no skin in the game and walk away with a profit while the company files for bankruptcy is hilarious, in part because it obviously doesn’t hold up to the slightest bit of scrutiny. The typical PE firm is buying a middle market business for 10-12x EBITDA on average. In today’s world, lenders will usually let you put 4.5-5.5x EBITDA on the business as leverage (in the ZIRP era, you could push things up closer to 7x, sometimes above that if it’s a stellar business). So on a typical 10x deal with 5x debt, 50% of the capital structure is PE firm equity which gets wiped out first before the lender loses a dollar. If that happens, the PE fund’s investor returns crater, which means no more Fund II/III/IV, which means no more fees for them to generate.
(As an aside, the typical “fees” paid by portfolio companies to the PE firm are, at least in modern limited partner agreements, largely offset against management fees and recaptured by the fund’s investors. The PE firm is not getting rich off these fees, at least not anymore.)
Third, private credit is not your local commercial bank. Many of the largest private credit firms are actually PE firms themselves - e.g., Apollo, Ares, and Blackstone, who are all known as “private equity” have actually become more valuable to the public investor community due to their private credit business. These are not sadsack regional banks and credit unions getting hoodwinked by New York finance elites. In many cases, they are the same firms, with the same resources (in-house restructuring / “workout” teams, portfolio ops, etc.).
It’s important to realize that private credit funds raise capital from institutions and HNW individuals with locked-up commitments - it is the exact same investor base as PE, and fundamentally a very similar business, they just invest at a different part of the capital stack. Because of this, risk of contagion is very low. Bank exposure to private credit is something like 1.5% of their portfolio - it is tiny. The extent of the blowback will be that a pension fund investing in alternatives has a poor return in one asset class across a dozen - it’s not systemic risk.
Finally, what IS true is that pre-ZIRP portfolios and software-heavy credits (something like 15-20% of leveraged loans outstanding) are in a tough spot. These businesses are either failing or they have too much debt that has “re-rated” to higher interest rates as interest rate hedges fell off. What happens from here is that the companies with structural issues in their business model will cease to exist (e.g., certain SaaS businesses). This happens all the time - it’s capitalism. But the good businesses are not going to disappear because of a bad cap structure - they will just get recapitalized.