Bebop Cap

generalist equity analyst

[Bebop Cap @bebop_cap]

@tangentstyle always thought navy and brown just highlighted you're an American versus a Brit who's always navy and black. Guess things change and/or idk what I'm talking about (he who wears flannels most days in his home office)

[Bebop Cap @bebop_cap]

@TheLAPurchaser No one ever mentions $TECH in these round ups, but they’re a sneaky exposure to drug production and onshoring, QA, etc

[Bebop Cap @bebop_cap]

@tangentstyle PE is actually a 2-4 year duration asset when done right. In practice, they sell the good assets quick and hold onto bags for 7+, creating a 12+ year fund life after all said and done

[Bebop Cap @bebop_cap]

@tangentstyle @JoshKale There’s more supply of these type CEFs coming to market soon too

[Bebop Cap @bebop_cap]

@tangentstyle Def elegant, and intelligent investing testing the market on return, event path, and scale opportunity

[Bebop Cap @bebop_cap]

@tangentstyle I think he has to say “I might make money but not a hugely profitable trade.” He certainly can’t boast publicly that he thinks he’s getting a face ripper

[Kent Collier @DDInvesting]

My take: The Blue Owl news is retail media fear mongering.

My credentials: I started and run the leading information and data provider on all things credit (@OctusCredit). I’ve been involved or have knowledge of most major bankruptcies since Enron.

Companies file for bankruptcy or go insolvent for three reasons: 1) they run out of money (ie. Revlon) 2) fraud (Worldcom) 3) capital structure management (everything else)

Software companies will not run out of cash. They are negative working capital businesses with negligible physical capex (software spend is capitalized albeit an analyst will adjust for that). The worst software companies will have gross retention ~ 90% and net retention 95-100%. That means the theta decay on annual recurring revenue (ARR) is single digits. Further a software company can manage expenses to further improve margins in a declining revenue environment to increase EBITDA and cash flow

Fraud…I posit negligible risk. Most private credit backing software deals are the leverage in an LBO backed by a sponsor. As a CEO that has done multiple recaps with multiple sponsors, the financial diligence (QoE and beyond) is intense. Further its very hard to obfuscate financials of software companies given the cash flow nature of the business

Which leads me to capital structure management. Very very few of these deals have meaningful financial covenants. Yes many will have a leverage covenant but the covenant itself is so high with so many addbacks its nearly impossible to breach outside of a cataclysmic drop in EBITDA (which Ive already explained is difficult for software cos). So nothing is bringing these companies to the table to effectuate a liability management exercise.

Further, and importantly the private credit lender and sponsor relationship is a unique one. A lender wants to have a positive relationship with a sponsor so the sponsor will continue to show them their deals. The fees for doing a private credit deal are substantial and quick and being shut out of a Tier 1 or Tier 2 PE deal would be bad for business. So the private credit fund will usually work in collaboration with the private equity fund to insure steady waters (you’ve seen this with PIKing many deals the past 18 months)

In addition, private credit and leverage is only a portion of the cap stack. Given the multiples over the past 5 years for SaaS companies there is a substantial amount of equity underneath the debt stack even in a unitranche. And not small equity checks. Equity checks in the billions that PE funds will do whatever they can to keep the keys to preserve their franchise and fund economics.

A quick point about the gates going up at Blue Owl. For the last two years Ive been telling people private credit will have its BREIT moment. That’s not a ding on the asset class, more of a point in time when the liquid marketplace for the asset hasn’t YET developed to maturity. This has happened for effectively every major asset class in the history of finance and banking. It is not new. It is simply the growing pains a scaled asset class transcends with time. In a couple years this market will be more liquid.

So in summary:

1) lots of cash flow
2) negligible risk of fraud
3) big equity cushions

As I look into the market, this may be a once in a generation time to buy incredible assets that are trading at historically low multiples because of an AI narrative that throws the baby out with the bath water.

[Bebop Cap @bebop_cap]

@UpslopeCapital @OnodaCapital Guess no snow made them rethink. Move East.

[Bebop Cap @bebop_cap]

@wild_grover Can you expand on the FCF conversion?

[Bebop Cap @bebop_cap]

A year later and boy was this wrong!

Ofc, looking at ‘26 there’s for sure pricing action in the industry

[Bebop Cap @bebop_cap]

Would argue the whole industry has entered phase 1 and could be on a multi-year earnings growth cycle.

[Bebop Cap @bebop_cap]

@oknotsomuch Bongo Java from Nashville is fun

[Bebop Cap @bebop_cap]

@WaterworldCapi1 @EllliotttB Could be all three at various parts of her day

[Bebop Cap @bebop_cap]

@JBierne Impressive business building if you ask me. They’ve held onto the gains from ‘21 boom, and since repositioned the fleet enough they can start declining truck CAPEX. Storage is a lease up story and just a good cash flow business. UBox is potentially a transformative segment

[Bebop Cap @bebop_cap]

@NestBetter I’ve liked $CTKB pushing into reagents and software. Started charging for software on ~20,000 user base in Q4. Will find out soon how many of those users they monetized at launch, but whatever that number it is nearly 100% flowing down to fcf.

[Bebop Cap @bebop_cap]

@tangentstyle “25% of everything”

[Bebop Cap @bebop_cap]

@tangentstyle Yes

[Bebop Cap @bebop_cap]

@tangentstyle Buffett

[Bebop Cap @bebop_cap]

@tangentstyle Democratizing whole life policies!

[Bebop Cap @bebop_cap]

@maxolson @Wexboy_Value Paperback please

[Bebop Cap @bebop_cap]

@GrantHesser @KarstResearch First is to take a fly casting lesson. Next, hire a guide to take you out to a nice section of river that isn’t too hard to cast and mend line for an easier presentation. Like anything it’s reps needed, but too often folks jump into it without the skills and get frustrated