Poker legend Dewey Tomko built his career around asymmetry. Special situations credit investing often works the same way Most investors still analyze Credit through spreads and ratings. But increasingly, some of the most attractive opportunities in Credit are emerging in stressed and special situations where dispersion, refinancing pressure and restructuring dynamics create significant asymmetry. In these situations, the real game is often played elsewhere: incentives, legal structures,...

Everyone has been playing RocknRolla in Credit. Except investors. For years, investors funded the party: loose underwriting, aggressive structures, “extend & pretend”. Now the cracks are showing. And something interesting is happening. Credit is becoming one of the richest opportunity sets today. One company. One equity. Dozens of credit instruments. More dislocations. More opportunities. Oh and yes, shorting credit today offers a very different game than shorting equities: better asymmetry!

Why Credit is not that rosy but more importantly why you should care. If PIK, LME, AM, RR are unfamiliar acronyms to you then this is for you! The last time I felt uneasy like that was in 2007 when I learned about Countrywide’s tricks with mortgages. In this post, I describe that while the world of Credit has drastically changed over the last decade, the signs of excesses rhyme with the past.