Thoughts on Private Credit (OWL, MLCI), BDCs (OTF) and CLO CEFs (CCIF)

I typically stay away from truly controversial stocks, but the current hysteria around all things private credit and software is going a bit far, with some journalists and Substack writers openly cheerleading for a meltdown.  As someone who worked in the middle of the GFC, the comparisons don't make sense to me.

A quick background, direct lending became popular following the GFC when banks pulled back on making middle market commercial and industrial loans due to increased capital requirements (plus a general reduction in risk taking).  Unlike banks, private credit funds don't utilize deposits as a funding source, instead these funds generally have locked up capital that can withstand the 3-5 year maturity lifecycle of these illiquid loans.  The current private credit market is primarily composed of below investment grade borrowers, most of which are PE sponsored.  Fast forward, financial innovation was taken a bit too far.  On the hunt to raise additional capital, alternatives managers turned to the wealth channel where they sold interval funds offering periodic liquidity (usually capped at 5% per quarter) despite the underlying assets being relatively illiquid.  The pitch is pretty simple, private credit offers equity like returns (especially when short term rates were elevated) with minimal volatility since the underlying loans don't trade (a selling point to the borrower, they know their lender), capital poured in over the last 2-3 years.

This past fall, a couple scary headlines around fraud at First Brands (bank led, syndicated loan) and Tricolor (bank lead, but not syndicated), neither of which were private credit loans, sparked a wave of concerns around the broader leveraged lending industry.  First signs of stress were felt in the publicly traded BDCs falling to significant discounts of their stated NAVs (industry average is currently ~75% of NAV), followed by redemption requests from investors in non-traded BDCs.  With public BDCs trading at wide discounts, the natural trade for someone who still believes in private credit and is sitting in a non-traded BDC is to redeem at NAV and buy shares in a substantially similar publicly traded BDC (many managers have both publicly traded and non-traded BDCs which share allocations) at a discount.  Although, I suspect most of the redemptions are simply scared investors wanting out entirely.

Blue Owl Technology Finance (OTF)

Blue Owl (OWL) is at the center of the storm, it's a fast growing alternatives manager (not sure if "fast growing" carries the same risks as in banking, but it's probably close!) focused on private credit with an overweight to technology and software companies, including some dedicated technology strategies.  Blue Owl has the 2nd and 3rd largest publicly traded BDCs by NAV, Blue Owl Technology Finance Corp (OTF) and Blue Owl Capital Corporation (OBDC), which trade at approximately 67% and 77% of NAV respectively (may have changed since writing).  Part of Blue Owl's strategy has been to raise capital in non-traded BDCs and bring those public after achieving sufficient scale (OTF came public in June 2025 this way), but that strategy came to halt when Blue Owl tried to bring Blue Owl Capital Corp II (OBDC II) public by merging it into OBDC at an NAV-to-NAV basis when OBDC was trading at a discount.  They naturally received backlash and reversed course, but the damage was done and they received significant redemption requests.  In February they announced they'd be liquidating OBDC II and returning capital to investors, despite the bad press, this is the right move.  Investors will likely get near or above NAV (including interest) as the loans are sold or are paid off (again, loans have short average lives).

That brings us back to OTF.  Advancements in artificial intelligence have given a haircut to arguably previously extreme valuations in the software sector.  Count me as a bit of an AI skeptic, but in my day job we've been trying to utilize AI tools to extract information from a PDF and ingest it into a downstream system with limited success.  This is a task we've looked to offshore or generally use entry level employees for and still haven't been able to make it work reliably with current AI technology.  I have a hard time believing that AI is going to render the entire software sector useless in under a few years (again, most private credit loans have relatively short average lives) where the equity will be wiped out and credit providers impacted.  Additionally, any software that is embedded in a large organization's operations is extremely difficult to displace, its just not worth the risk to rip out, replace with a vibe coded alternative and explain that to your clients and regulators.  No chance.  I think most spreading these fears have never worked on a core platform transition, its very difficult.

OTF is a very large BDC, $14B of assets and is currently under levered with a debt-to-equity ratio of 0.75x (below the average of ~1x) giving them flexibility to continue lending, fill the hole of others that will be backing away and likely getting better terms in the current turmoil.

Bullet point thoughts:

• Scale here can equal a higher quality portfolio.  Smaller software companies are more at risk for AI disruption than those with significant embedded client relationships.  OTFs size gets it both into the larger more stable credits and provides diversification.
• OTF recently upsized their share repurchase program to $300MM, they utilized about $65MM of the old repurchase plan in the second half of the year.  Not super significant given the overall size, but does show some alignment with minority shareholders.  Although I'd like to see more, with the stock trading at a significant discount, almost no investment can match the returns of share repurchases.
• Only about 50% of the shares are currently in the float, this is a former non-traded BDC and as unlocks happen, the shares might come under further pressure as private credit and software concerns continue to swirl.
• OTF has an equity position in SpaceX, about 2.5% of net assets, there are reports that SpaceX is planning to go public later this year, potentially providing an exit opportunity at a high valuation.

At this time last year the average BDC traded at 96% of NAV, I don't think a 15% discount is overly aggressive once the current uncertainty clears.

CLOs vs CDOs

I've seen a lot of comparisons calling private credit today similar to CDO's of 2007, including the former Bond King himself, Jeffrey Gunlach:

Total nonsense (and he knows it).

Or tweets like this:

Again, nonsense, someone that is just looking for clicks.

A brief history, the underlying assets of collateralized debt obligations (CDOs) were BB and single-B tranches of non-agency subprime RMBS (or even worse, BB/B tranches of other CDOs) from the likes of Countrywide and Washington Mutual.  Inside of those RMBS transactions were subprime mortgages that were then split into tranches, the CDOs bought up the junior most slices just above the equity.  Despite the BB or B rating, these securities were effectively binary, if they defaulted there was little chance of recovery because the senior tranches in the RMBS would be paid first.  Almost all of these mezzanine tranches completely were wiped out with zero recovery.

In a CLO or a private credit CLO, most of the loans are also rated BB or B by design, the PE firms leverage the balance sheet of the underlying borrower to the point they achieve this rating knowing that it fits the investment mandate of a CLO.  The difference between a CLO and CDO however is in: 1) loans in a CLO are senior secured, meaning they're the top of the capital structure, not the bottom like in a CDO despite the same rating (there will be some recovery on the loan, let's say 30-70%), 2) there's actual diversification in a CLO, usually there a couple hundred loans in the underlying collateral pool, mixed across many industries (unlike a CDO which was just a leveraged bet on high-LTV housing).  Not to mention there's no such thing as a synthetic private credit CLO, in 2006 you'd often see CDOs long credit default swaps on tranches of RMBS that were multiples of the cash value of the underlying, that's not happening today.  It's not the same.

BDCs and private credit funds generally have low leverage, something like 1-1 debt-to-equity (even though the legal limit for BDCs was raised to 2-1, most are well below that), then sometimes the BDC or fund will issue a CLO, but again these will have relatively low leverage thanks to the Volker Rule which requires the issuer to retain risk (the issuer of a private credit CLO or a CRE CLO generally retains the junior tranches and equity).  Banks don't really participate in the private credit CLO market, it's mostly insurance companies or others that don't have deposit funding buying the senior tranches.  You can think private credit was poorly underwritten, etc., but there's limited contagion risk when compared to the GFC.  There would have to be a great depression like event where many/most industries are annihilated to create losses to the senior tranches of CLOs (either broadly syndicated or private credit).  To illustrate the math, the AAA tranche of a CLO (the portion held by banks and insurance companies) makes up about 60% of the capital structure, in order to take losses, using the current recovery rate of approximately 50%, 80% of the underlying loans would need to default.  Unlikely given the diversification.

Carlyle Credit Income (CCIF)

For those that want even more juice to the turmoil in credit, look no further than Carlyle Credit Income (CCIF), this is the former Vertical Income Fund (VCIP) that Carlyle (CG) took over in 2023, changing the strategy from a boring mortgage fund to CLO equity.

CLO equity is an odd security, especially to be packaged into a publicly traded equity, it is the residual piece of a securitization whose value is highly levered to the value of the underlying bank loans.  However, CLOs are not mark-to-market vehicles, they are actively managed pools that have medium-to-long term financing and the underlying bank loans have relatively short weighted average lives (2-3 years typically, stretching out a bit during tougher times) where the manager can reinvest those principal payments coming back to them at par into secondary market loans trading a discount, dubbed "building par" which accrues to the equity.  A volatile market is actually good for the equity, the best returning vintages of CLO equity were during the GFC when loans were trading at significant discounts that eventually recovered.

Unlike private credit, CLO equity does have a secondary market with some liquidity (wouldn't say its a liquid market however) and CCIF has legit marks on their assets.  CLO equity prices swing a lot with the value of underlying loans.  1/31 NAV is $4.79, it currently trades for 70% of NAV and represents an interesting opportunity.  As loan values recover, the NAV will be highly geared and likely to move up substantially unlike BDCs where most of the skew is to the downside.

Mount Logan Capital (MLCI)

MLCI is a recent reverse merger that came public in U.S. markets last year, they're a private credit asset manager with a bunch of lowish quality management contracts they've rolled together over the last several years from failed management platforms.  Following a tender offer, MLCI is trading at somewhere around 50% of book value with a decent amount of liquidity thanks to merging with CEF TURN providing it with a securities portfolio that could be liquidated in order to make more acquisitions.  One of MLCI's mandates (through a convoluted JV structure) is the external manager of BCP Investment Corporation (BCIC), a small $520MM asset BDC that trades for sub-60% of NAV.

On BCIC's recent earnings call, management made it fairly clear they're mostly interested in growing the platform (potentially at the detriment of shareholders, it got a little chippy during the Q&A) and view the current market turmoil as a potential opportunity to roll up more failed BDCs.

Edward Joseph Goldthorpe BCP Investment Corp. – Chairman, CEO & President

Yes, it's a great question. So I don't see us pursuing organic growth. I mean if anything, given where our stock trades, it makes sense for us to continue to buy back stock. So the tender plus share buybacks, obviously, were a pretty nice tailwind for us or not per share.

In terms of like all this recent choppiness in the market and all the recent headlines, our M&A pipeline is probably bigger than it's ever been. And that includes both public entities and listed entities. So we expect to be able to grow our platform. We had to get Logan Portman done. And that sets us up to do continued M&A. So as you know, we've kind of rolled up a number of BDCs over the last couple of years, and it's a key part to our strategy to basically continue to do that, optimize the portfolios and continue to buy back stock.

If I had to guess, I'd say Great Elm Capital Corp (GECC) and their manager Great Elm Group (GEG) would make a good fit.  GECC got caught up in the First Brands mess and experienced a big write-down as a result, however, it trades at a premium to BCIC today.  MLCI (and BCP) could end up acquiring GEG and eventually rolling GECC into BCIC like they have with other BDCs, run it separately for a bit until the timing and valuation make sense for a merger.

Disclosure: These are just my own personal views.  I own shares of OTF, MLCI and CCIF (CCIF in an account that sits outside of the portfolio I track on my blog)

Theravance Biopharma: Failed Phase 3 Trial, Strategic Review

Theravance Biopharma (TBPH) ($700MM market cap) announced earlier this week their Phase 3 trial evaluating ampreloxetine for the treatment of a rare disease did not meet its primary endpoint and the company was winding down R&D efforts.  The press release has a lot of good nuggets in it that'll be referencing.  Back in November 2024, the company began a strategic review with the hiring of Lazard as their financial advisor.  The review on the surface would appear to be stale, but it reads as if a decision tree is in place dependent on the results of the ampreloxetine clinical trial.

In connection with this announcement, the Strategic Review Committee of the Theravance Biopharma Board of Directors (the “Committee”) is accelerating its ongoing review of alternatives to maximize value for shareholders. Since its formation in 2024, the Committee has been working on an ongoing basis with Lazard, its independent financial advisor, to evaluate opportunities available to the Company, including under multiple potential outcomes for the CYPRESS study. Building upon this work, the Committee will act with urgency to evaluate a broad range of value maximizing and tax efficient alternatives, including but not limited to a sale of the company.

If the trial failure was already fully contemplated and the strategic process isn't starting from a standstill, things could move pretty quickly from here.  In the press release, TBPH gives us all the components we need to come up with a back of envelope estimate of its fair value.  Unlike other busted biotech, TBPH has a number of valuable assets, this isn't a typical melting ice cube, post restructuring, it will be cash generative.

Cash of $326.5 million at Q4 2025 (no debt); approximately $400 million expected at end of Q1 2026 including receipt of 2025 milestones; Theravance highly confident in achieving $100 million 2026 TRELEGY milestone

Trelegy is a blockbuster COPD and asthma treatment (partnered w/GSK) TBPH monetized by selling their interest to Royalty Pharma (RPRX) in 2022 for $1.1B in upfront cash plus some contingent milestone payments (they further monetized Trelegy last year by selling some farther dated royalty payments to GSK for $225MM, but that's in the cash balance number above).  The remaining milestone payment TBPH is entitled to receive from Royalty Pharma is outlined in the 10-Q, which they describe as "highly confident in achieving":

With respect to 2026 TRELEGY global net sales, we are eligible to receive either (i) $50.0 million if Royalty Pharma receives $270.0 million or more in royalty payments from GSK, which we would expect to occur in the event TRELEGY global net sales are approximately $3.16 billion or (ii) $100.0 million if Royalty Pharma receives $305.0 million or more in royalty payments from GSK, which we would expect to occur in the event TRELEGY global net sales exceed approximately $3.51 billion. To achieve the higher $100.0 million milestone in 2026, TRELEGY global net sales would require less than a 2% increase over its 2024 global net sales.

Total 2024 TRELEGY global net sales represented a 26% increase compared to 2023, and TRELEGY is currently expected to generate global peak sales of approximately $4.0 billion in 2026 according to consensus estimates. TRELEGY global net sales for the three and nine months ended September 30, 2025 were $979 million and $2.92 billion, respectively, which represented 24% and 13% year-over-year growth, respectively.

In addition, TBPH also has a 35% interest in another FDA approved COPD treatment, Yupelri with partner Viatris (VTRS).  It launched in 2019 and sales continue to grow, although at a slowing pace.

Together, the cost savings from the restructuring and continued sales from YUPELRI^® are expected to result in the Company generating approximately $60 to $70 million of annualized cash flow, starting in Q3 2026. This cash flow projection is comprised of an estimated $45 to $55 million of Income from Operations (excluding non-cash share-based compensation) and projected Interest and Other Income, and does not include potential income from the $100 million TRELEGY milestone. 

 

Following the decision to wind down the ampreloxetine program, the Company's sources of value include approximately $400 million of expected cash at the end of Q1 2026, a 35% interest in YUPELRI^® that generates durable cash flow, and the potential TRELEGY milestone payment, as well as Irish tax attributes.

The Irish tax attributes are described as following in their 10-K:

As of December 31, 2024, the Company had Irish net operating loss carryforwards of $1.17 billion and capital loss carryforwards of $60.9 million, both of which can be carried forward indefinitely. The Company has additional Irish tax attributes of $1.19 billion which primarily consist of unused capital allowances. Net operating losses and capital allowances can be used to offset future income from Irish entities and income related to intellectual property.

I'm just going to assign no value to the tax attributes, but certainly to the right buyer they'd be worth something.  The key variable is how much the Yupelri 35% stake is worth, it does have patent protection out to 2039 but that has faced some legal challenges.  The obvious buyer would be VTRS, they could realize cost synergies, but for a finger in the air valuation, I'm going to toss an 8x multiple at the mid-point of their income from operations guidance which includes their corporate overhead costs.  I think is reasonably conversative, but feel free to pushback if you disagree.

Disclosure: I own shares of TBPH

Braemar Hotels & Resorts: HST Four Seasons Sale, Updated Thoughts

This week, Host Hotels & Resorts (HST) (the grand daddy of lodging REITs) announced the sale of two luxury properties, the Four Seasons Resort Orlando and the Four Seasons Jackson Hole for a total of $1.1B ($1.9MM/key):

The multiples provide a pretty good comp for Braemar Hotels & Resorts (BHR):

HST management was almost glowing at the current depth of buyers in the luxury market:

Michael Joseph Bellisario Robert W. Baird & Co. Incorporated, Research Division – Director and Senior Research Analyst

Jim, on the Four Seasons sales, certainly great execution there and you're proving out value. So of two parts here. One, how deep is that buyer pool today? And then two, can you, and next maybe, would you sell more of your top assets? Or what's the outlook and thinking around more high-value dispositions going forward?

 James F. Risoleo Host Hotels & Resorts, Inc. – President, CEO & Director

So are there other opportunities to maximize value within the portfolio? I think there is, we'll be opportunistic. The buyer pool for these types of assets is, I think, a lot deeper than people realize. There are a lot of sovereigns out there who are very interested in luxury hotels. There are high net worth individuals who are interested in luxury properties as well. And there are a couple of big private equity firms that have a lot of capital that have been sitting on the sidelines waiting to -- waiting for the inflection point to jump back into the market. And we're hopeful that this is the inflection point that we can prove out that there is value here, value to be created, and we're certainly hopeful that we're going to get the read through and see some multiple expansion as a result of not only this decision, but all the capital allocation decisions that we've made over the last 9 years.

Updating my math from September, and removing the Cameo Beverly Hills as it has undergone an extensive renovation/re-branding which has caused it to be NOI/EBITDA negative over the last twelve months: 

Not all of BHR's properties are luxury, about 25% of the portfolio is urban, so a full 15x hotel level EBITDA takeout is unlikely, but given how levered the capital structure with the termination fee is to the equity stub, there's a lot of potential upside here if BHR can get a similar transaction execution.  HST also called out the two sold hotels will need significant capex in the next few years, potentially suppressing the transaction multiple.  An advantage of the external management structure at BHR is Ashford gets paid as the project manager for any construction projects and the last twelve months of construction management fees are capitalized in the termination payment.  Ashford is incentivized to do renovation projects and following the completion of 3 hotel refurbishments in 2025, the portfolio should be pretty clean for a new owner, maybe getting us closer to 15x?

Another note of interest, BHR changed how they're handling preferred dividends to prepare for a sale, seems like they should be pretty close to wrapping this thing up.  I exercised my $2.50 call options that expired in January and have added to my position since.  I'm also up for any comments or thoughts on AHT, which recently announced a similar strategic alternatives process (is that different than BHR's "sale process"?) although they haven't announced a termination payment agreement with Ashford as BHR did.

Disclosure: I own shares of BHR and April $2.50 call options

Green Dot: Creating a Standalone BaaS Bank

Green Dot Corporation (GDOT) (~$715MM market capitalization) is one of the original fintech firms targeting the underbanked population in the United States who primarily live paycheck-to-paycheck.  They provide accessible financial products like prepaid debit cards, secured credit cards, money processing services, tax refund processing services both under their own name and white labeled with partners (Walmart, Apple, Amazon, Intuit, Jackson Hewitt, PLS, Uber, etc).  The end consumer can access their money in the increasingly non-cash world without a traditional bank account.  Green Dot provides back-office banking services for their own consumer services and via third party partners through their bank, Green Dot Bank.

Green Dot's history has a lot of twists and turns I'm going to gloss over (it has been a poor investment since its 2011 IPO), however back in November, Green Dot announced they were entering into a transaction where they are separating the fintech business from the bank:

The fintech business that consumers are familiar with is going to a firm called Smith Ventures.  Bill Smith, founder of Smith Ventures, is a serial entrepreneur who had previously founded Insight Card Services, which he sold to GDOT in 2014 and Shipt which he sold to Target (TGT) in 2017 for $500MM.  After those transactions, in 2017 he helped fund/found CommerceOne (currently privately held), a de novo bank based in Alabama, whose leadership team came from First Partners Bank after it was acquired by Progress Bank (which merged with UCBI in 2023) that same year.  Smith is on the board of CommerceOne and presumably the architect behind this whole transaction, there are few articles floating around about him, he's a bit of a rags-to-riches story and seems to have a successful track record at a relatively young age of 40.

Pre-GDOT merger, CommerceOne appears to be a well run, albeit small, C&I focused community bank with an admirable efficiency ratio in the low 40s (question will be how well that scales).  Credit issues have been minimal since the bank started operations, ROE is ~14%, ROA is 1.4%, cost of funds is a little high at 2.99%, but the GDOT acquisition will help drive that number down considerably.

The M&A deck lays out the bull case pretty nicely, the proforma GDOT/CommerceOne's peer group trades at pretty heady multiples as the Bank-as-a-Service ("BaaS") business model provides the dual advantage of cheap deposits and significant non-interest (fee) income.  Peers like Pathward Financial (CASH) (Upstart and MoneyLion are partners) and The Bancorp (TBBK) (Chime is a partner) trade for 3.0x and 4.0x tangible book value respectively, including a wider peer set, CommerceOne outlines the potential TBV multiples the new bank could trade for:

With GDOT trading at $12.28/share, I have the stub value to the BankCo trading just under 70% of tangible book value, well below where similar (but more established) peers trade.

Bank mergers can be challenging, I imagine this one will be particularly so since pre-GDOT CommerceOne is acquiring a bank several times its size, has mostly a remote workforce no where near Birmingham and features integrating a completely new business model.  Other risks associated with proforma CommerceOne include exposure to Green Dot (7-year initial deal), Apple and WalMart concentration risk at the fintech level and regulatory risks associated with serving this customer base (although the CPFB has been significantly neutered).  I find this to be an attractive setup, the deal is expected to close mid-2026, it'll likely take another year or two for the bank to trade more inline with peers but has significant upside.

Disclosure: I own shares of GDOT

Year End 2025 Portfolio Review

Another ugly year for me, that's three of the last four.  My portfolio was down -5.93% on the year, compared to a positive +17.91% for the S&P 500.  My long term performance has shrunk to 18.49% annualized, below my long term target of 20.00%.  I've spent some time considering how much more effort I want to put into trying to outperform the market going forward.  Starting in the new year, I'm taking on an expanded role in my day job, so even if performance bounces back considerably I'm going to scale back on the blog and individual stocks.  Focusing on my career seems to be the best return on investment at this point in my life.  However, I plan to continue posting for the love of the game, just will be less frequent and/or be dedicated to higher conviction ideas.  

Current Positions (alphabetical order):

• Braemar Hotels (BHR) is an externally managed (Ashford Inc) lodging REIT focused on luxury hotels and resorts, back in August, BHR announced the initiation of a sales process.  In keeping with the "K-shaped economy" theme, BHR's high end luxury resorts have performed well on an individual basis, but the REIT's abusive external management agreement and conflicts of interest have kept the stock from performing.  Ashford is incentivized to sell BHR because they're due a 12x termination fee, but not necessarily incentivized to sell at an advantageous price for the equity (other than getting a reasonable enough deal to secure the vote).  @somehotelguy posted on Twitter back at the end of October, "Braemar call for offers tomorrow.  Any guesses?" and the CEO Richard Stockton wrote in his annual letter that "further announcements should be coming in 2026."  I'm hoping for a good outcome in Q1.  Interestingly, Ashford's other lodging REIT, Ashford Hospitality Trust (AHT), initiated a similar sales process in December, adding legitimacy to both, seems like Monty Bennett is serious about one last grift and leaving public markets.
• Brightstar Lottery (BRSL) is a pure play lottery operator following the sale of their IGT gaming terminal business to Apollo (APO).  Brightstar trades cheap at just ~6x EBITDA for a fairly high quality business with clear revenue line of sight.  Brightstar is returning cash to shareholders via a large buyback plan and an above average dividend yield.
• Franklin Street Properties (FSP) is an office REIT in the midst of a sales process, shares have traded down significantly since my original post.  FSP's debt (combination of two term loans and senior notes) is likely the reason, their debt matures on 4/1/26, the company issued a press release on 11/21, "FSP is currently in active negotiations with a potential lender to refinance all of its existing indebtness."  At a current price of $0.90/share, I have the implied cap rate at 14-15%.  There's a lot of talk about 2026 being the year when commercial real estate transaction activity returns as bid-ask spreads shrink with sellers accepting the new reality; a sale of FSP should happen early in Q1.
• Forward Air (FWRD) is primarily an asset-lite less-than-truckload transportation services provider that historically had a nice niche in airport-to-airport routes.  They're almost a year into a strategic review that has had a few twists and turns.  There's a lot of debt here, but FWRD insists the process is ongoing, with potential proxy fight / director nominations around the corner, the company might end up taking the best offer on the table sooner than later.
• Golden Entertainment (GDEN) is a regional casino owner operator focus on the Nevada market, they announced a transaction with VICI buying the real estate and Chairman/CEO Blake Sartini taking the operating company private.  The implied multiple on the operating company is around 1x EBITDA leaving open the possibility for a bump to secure shareholder approval.

I left the VICI side of the trade unhedged which appears to be a mistake, shares are currently trading below the merger consideration and depending on when the close happens, GDEN could get another $0.25 dividend or two that I didn't account for in the above.

• GCI Liberty (GLIBA/K) is an Alaskan telecom that recently completed a $300MM rights offering backstopped by John Malone (the backstop wasn't needed).  The rights offering worked out nicely for those who participated with equity being raised at $27.20/share compared to the current price of $36.09/share.  Now we wait for Malone to put those funds to work with an acquisition to turn GLIBA into a "new Liberty Media".  I hope we see a true arms length transaction and not something like GLIBA buying distressed Liberty Puerto Rico from Liberty Latin America (LILA).  In the meantime, GCI Liberty remains reasonably cheap at just 5.7x LTM EBITDA, but competition from satellite providers like Starlink is a concern.
• Green Brick Partners (GRBK) is primarily a Texas homebuilder, mostly focused on Dallas, but they've recently branched out to the Austin and Houston markets.  The company has performed exceptionally well, but in the back of my head I wonder what is really their competitive advantage?  They would tell you land sourcing and development, they like to talk about infill communities, but its questionable.  GRBK trades for 10x earnings and 1.5x book, both pretty reasonable for this business, I've coffee canned this position for the time being.
• Income Opportunity Realty Investors (IOR) is a money-market like investment with almost all of its assets consisting of a cash sweep account receivable with its external manager that owns almost all of the shares.  The play here is to wait until they squeeze out the remaining shares.  The controlling family ownership group, via TCI, continues to buy whatever shares are available below $18 per share, book value is $30.72 per share.
• Mechanics Bancorp (MCHB) is a California based regional bank with branches up and down the west coast that swallowed up distressed HomeStreet (HMST) this past year.  The bank is majority owned by Ford Financial Fund, their strategy is pretty simple, chip away at the expense ratio and pay out the vast majority of net income as a dividend.  The team at Ford Financial has run this playbook a few times in the past before selling out, the same will likely happen here at somepoint.  I plan on selling down my position sometime in 2026 as my original thesis with HMST has played out.
• Mount Logan Capital (MLCI) is a subscale, lower-quality private credit asset manager that recently completed a reverse merger with 180 Degree Capital (TURN), providing MLCI with a U.S. listing and some cash/securities on its balance sheet.  A lot of digital ink is being spilled about the risks of private credit, I generally think the systemic risk fears are overblown and much of the "cockroaches" that have been uncovered are unrelated to private credit.  But, I'm under no impression that Mount Logan is a long term winner in this space, the company has an odd management structure that doesn't scream alignment and the management team has some past missteps with credit picking in their prior seats.  This week, MLCI formally launched their previously announced tender offer for approximately 12% of the shares outstanding at a price that reflects the merger date book value of $9.43 per share.  The tender is set to close on February 2, 2026, doing a little work on what potential outcomes could look like I get the below:

The math will end up a little better because I'm assuming 100% of shares tendered in the above, management has pledged not to tender and there will be some legacy shareholders asleep at the wheel or that just forget to tender.  The IRR swings pretty wildly depending on what discount-to-book you believe the manager will trade at post merger.  In the long run, the hope is that MLCI will decouple from being valued off of its balance sheet and rather be valued based off an earning stream, but that bridge is pretty shaky and confusing at the moment.

• Net Lease Office Properties (NLOP) is an office REIT with an explicit liquidation business plan, it was spun from W.P. Carey (WPC) with corporate level debt, but that's all been paid off and the REIT is now distributing asset sales proceeds to investors.  NLOP is a pretty safe way of playing the return to office theme.
• NSTS Bancorp (NSTS) is a small thrift conversion located in the far northern suburbs of Chicago.  The thesis is fairly simple but requires patience, NSTS passed its three year mark following the conversion making it eligible to be acquired by another bank or credit union.  NSTS trades for 0.80x tangible book value, stopped repurchasing stock and is facing shareholder pressure to sell.  Tim Melvin was on Value After Hours a few weeks back and gave a quick pitch for NSTS.
• Sotherly Hotels (SOHOO) is a small lodging REIT that is being taken private by Kemmons Wilson Hospitality Partners and Ascendant Capital for $2.25/share.  SOHO has a three classes of preferred stock, each of these classes features a conversion option to common in the case of a change of control, but the number of shares has a cap.  Below is what I show as the spreads and IRR based on a 3/31 close for the common (the merger is targeted to close in Q1) and a 5/15 close for the preferred stock (the conversion happens post merger closing).

The take-private transaction appears to be on track: the definitive proxy is out, shareholder vote is set for 1/22/26, insiders own 17.73% of the shares and have signed on to vote yes, Apollo (Marc Rowan has recently said the firm is in a defensive posture) is leading the financing of the transaction.  Sotherly Hotels is my largest position heading into 2026.

Closed Positions:

• Mereo BioPharma Group (MREO) earlier this week announced their two phase 3 trials for Setrusumab with partner Ultragenyx (RARE) did not meet their primary endpoints.  That news sent the stock down 90%.  I had coffee canned this position for several years, fully aware that it was a science based biotech which is generally against my rules when turning over rocks in the sector.  Taking this one on the chin stings quite a bit.
• Seaport Entertainment (SEG) is an owner of real estate and entertainment assets in Lower Manhattan that was a spinoff of Howard Hughes (HHH) in 2024.  I sold because don't want to be in the Ackman business anymore and losing their CEO was a blow to my thesis.  Cash burning real estate plays relying on a low cap rates (the Seaport was originally built to a 4% cash yield) don't typically perform well in public markets.  The current market price is currently valuing the equity at a fraction of replacement cost, but given the treatment of minority shareholders over at HHH, I'm skeptical SEG shareholders will enjoy the fruits of any eventual turnaround.  The discount will be used against them when Ackman eventually acquires SEG back.
• The broken biotech basket is currently empty, during the last six months I sold or transactions closed for: Athira Phrama (ATHA) unfortunately before the recent great news on an asset sale, CARGO Therapeutics (CRGX), ESSA Pharma (EPIX), HilleVax (HLVX), Ikena Oncology (IKNA), Mural Oncology (MURA), Repare Therapeutics (RPTX) and Third Harmonic Bio (THRD).
• Par Pacific Holdings (PARR) was also a long term holding of mine, it had a great year as crack spreads widened again.  I like the management team, they're rational allocators of capital, I might re-enter PARR the next time crack spreads tighten or some other shock hits the refining industry.
• I wrote some covered calls on two of my "catching knives" stocks in Jefferies Financial Group (JEF) and Fiserv (FISV), both ended up rallying and my short calls were exercised.
• I also closed out CKX Lands (CKX), Enhabit (EHAB), Soho House (SHCO), Creative Media & Community Trust (CMCT) and Light & Wonder (LNW) during the last six months.

Odds & Ends:

• I participated in the Verve Therapeutics (VERV) tender offer for the CVR.  In June, Eli Lilly announced the acquisition of VERV, a gene editing biotechnology company targeting cardiovascular disease, for $10.50/share plus a CVR for up to $3/share.  The CVR is tied to VERV's lead asset VERVE-102 beginning a Phase 3 trial.  Eli Lilly is VERV's development partner on this asset, must have seen what they liked, shares traded around $11.10/share heading into the tender valuing the CVR at approximately $0.60. 
• In July, I tried to put on a full position in Synlogic (SYBX), a broken biotech that counts Cable Car Capital as a lead investor (Jacob Ma-Weaver published a letter outlining his process for busted biotech reverse mergers), but the stock ran away from me as rumors swirled that SYBX could merge with a crypto treasury company.  I could no longer justify owning it in my biotech basket, never wrote it up because I never filled enough to own more than a tracking position.
• I bought Solstice Advanced Materials (SOLS) shortly after its spin from parent Honeywell (HON), mostly thanks to this Quick Value post.  I flipped it a week or two later for a quick profit.

Performance Attribution:

Watchlist:

Current Portfolio:

As always, thank you for reading and commenting, please feel free to share any ideas in the comment section.  Happy New Year, despite my poor performance, I am optimistic about 2026.

Disclosure: Table above is my taxable account, I don't manage outside money and this only a small portion of my overall assets.  As a result, the use of margin debt, options or concentration does not fully represent my risk tolerance.

Golden Entertainment: PropCo OpCo Split, Insufficient MBO Offer

Golden Entertainment (GDEN) (~$780MM market cap) is a regional casino operator primarily focused on the drive-to regional market, their flagship asset is the STRAT Hotel (fka the Stratosphere) focused on value oriented customers that opened in 1979 on the very north end of the strip.  The rest of their assets cater to the locals markets in Las Vegas, Laughlin and Pahrump (town 60 miles west of Las Vegas where prostitution is legal), plus 72 taverns in the Las Vegas area functioning as mini-casinos with slot machine gaming being the primary draw.  GDEN is one of the few remaining regional casino operators that still owns the majority of its real estate, most of the others have sold theirs to the gaming REITs.

On 11/6/25, after a long strategic alternatives process, Golden Entertainment announced a deal to sell their real estate in a sale-leaseback transaction to gaming REIT giant VICI Properties (VICI) (VICI was originally a 2017 spin of CZR, but has since diversified into other entertainment asset classes) while their OpCo is going private via an MBO transaction with CEO Blake Sartini (who founded GDEN ~30 years ago).  VICI is buying the real estate of 7 of the 8 casinos (the 8th is already leased to a third party) at a 7.5% cap rate, with the initial annualized rent set at $87MM. GDEN shareholders are to receive 0.902 VICI shares for each share of GDEN (at today's VICI share price, that's $26.39/share) plus $2.75 in cash for the OpCo ($29.15 total versus $29.65 GDEN's share price today).  On a trailing basis, GDEN has done $145.7MM in EBITDA over the last twelve months (this is now EBITDAR in Casino OpCo talk), subtracting out the new annualized rent equals ~$59MM in EBITDA, the $2.75/share represents $75MM, GDEN has some net cash after VICI assumes the debt, so Sartini is paying around ~1x EBITDA for the OpCo.

This low-ball offer has attracted the ire of two activists, friend of the blog Andrew Walker at Rangeley Capital wrote up a public letter and EverBay Capital has also express dismay at the offer for the OpCo being too low (additionally, Dalius @ Special Situation Investments has a great write-up, paywalled, but worth the sub).  I'll try not to rehash their arguments, but a couple additional thoughts and historical context I'd add:

• The transaction as currently structured reminds me of when Tropicana Entertainment (TPCA) simultaneously sold their real estate and OpCo to Gaming & Leisure Properties (GLPI) and Eldorado Resorts (ERI, now part of CZR) respectively in 2018.  TPCA was similarly a lower quality regional casino operator, had some tired properties, including some overlap with GDEN in Laughlin, NV.  Eldorado paid a pre-synergies 6.6x EBITDA (5.0x post synergies) for the OpCo, it could be argued TPCA's assets were slightly higher quality than GDEN, however GLPI paid a 9.1% cap rate for the real estate, the cost of capital for the gaming REITs has tightened since 2018, but still points to the GDEN OpCo being worth more than ~1x EBITDA.
• The activists are pushing to separate the selling of the two pieces, if GDEN did this, it would remind me a bit of when Pinnacle Entertainment (PNK) sold their real estate to GLPI in 2016 and spun the OpCo out as new Pinnacle.  After the spin it initially traded around 6x EBITDA (higher quality assets), and went on to double in the next year before eventually being acquired by PENN.  Tax rules have changed regarding REIT conversions and real estate spins, not sure if its still a possible structure, but again, points to the GDEN OpCo being worth more than ~1x EBITDA.
• The tavern business GDEN is not a throw away asset, GDEN previously ran a distributed gaming business in Nevada and Montana that were sold in 2023 to Illinois based J&J Gaming (a peer of publicly traded Accel Entertainment (ACEL)) for 9x EBITDA.  Distributed gaming is the better half of the business (GDEN has the capex, lease obligations, staffing etc), but J&J shares the slot-machine revenue with GDEN.  The taverns do $25MM in EBITDA, its probably worth at least 3-4x EBITDA (finger in the air, small business type multiple), or the entire check Sartini is writing.
• Others have mentioned the undeveloped land as a potential value nugget, but with the current oversupply on the strip (where 9 acres are located near the STRAT) and a majority of the rest being located in Pahrump, I don't see a lot of value in the excess land.

There's a go-shop ending on 12/5/25, but it's unlikely to draw new bidders unless someone can partner with GLPI on a better proposal (unlikely that someone would be able to pay a higher price for the whole thing without a REIT partner).  There's no minority of the majority vote here, management owns 30%, hopefully minority investors can shame Sartini into a bump.  There's minimal downside other than opportunity cost as the stock trades close to the merger consideration and GDEN will continue to pay a $0.25/share quarterly dividend, the merger is expected to close mid-2026.

Disclosure: I own shares of GDEN

Light & Wonder: Moving Primary Listing to ASX

Light & Wonder (LNW) ($6.5B market cap, $11.3B EV) is a Las Vegas based maker of video gaming terminals, shuffle machines, other table products, etc., plus they now own 100% of SciPlay (SCPL) after the 2023 buyout and have a growing iGaming unit.  This is the old Scientific Games (SGMS), they sold their lottery business to Brookfield (BN) in 2022 for $5.8B and the name went with the lottery business.  

Light & Wonder is undertaking a strange move, the company is currently traded in both Australia on the ASX (which they only added  as a secondary listing in 2023) and the U.S. on the NASDAQ, but after 11/12/25 (this coming Wednesday) the shares will be delisted from the NASDAQ, any remaining shares trading on the NASDAQ will move to OTC.  A popular strategy in recent years to increase your multiple has been to move listings to the U.S., but here Light & Wonder is doing the reverse which piqued my interest.  This is a global company, 2/3rds of their workforce is overseas, but only 5% of their revenue is generated from Australia, why pick Australia?  In the company's own words:

Rationale

The decision to transition to a sole ASX primary listing reflects Light & Wonder’s strategic focus on aligning our capital markets presence with our long-term growth plans and shareholder base. We are seeking to consolidate trading liquidity onto the ASX, a deep and liquid market that has a robust understanding of the gaming sector.

Translation: Multiples for gaming companies tend to be higher in Australia, for example, The Lottery Corporation (ASX: TLC) trades for 20x EBITDA, Brightstar (BRSL) trades for 7x EBITDA in the U.S., there some moving parts in there that may account for some of the difference, but they're largely similar businesses.  Light & Wonder's closest peer, industry leader Aristocrat (ASX: ALL) trades for 14x NTM EBITDA, while LNW trades for 8x.  Aristocrat has no net debt and is significantly larger, probably deserves to trade at some premium to LNW, but there's room for LNW's multiple to expand.

The next few days will likely have some volatility, there could be some forced selling in the U.S. as indices kick LNW out and then on the other end, forced buying as Australian indices include LNW.  Additionally, LNW is accelerating its buyback, "we expect to utilize a meaningful share of the remaining available $735MM capacity prior to the end of 2025."  Hard to tell how this will all shake out in the near term.

I posed the idea on Twitter/X and received a couple thoughtful responses:

I bought a tracker position last week, might increase it depending on what happens.  Keep in mind if you buy shares on the NASDAQ, you'll have to get in touch with your broker quickly and convert the shares to the ASX (they won't automatically) otherwise be stuck with shares that trade over-the-counter.

Disclosure: I own shares of LNW