The Ledger
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Lewinsohn: 'Good company, bad balance sheet' distressed opportunities rarely exist anymore
“And frankly, and this is part of why we do a lot more than distressed at diameter, really kind of the secular decline of the distressed debt industry. Because if you think about what makes distressed interesting is you want to buy a business that's going throu…”
Lewinsohn: Buying low-quality distressed debt early in market sell-offs is a mistake
“Our view is at the beginning of a sell off, the worst thing you could do is buy the lowest dollar price, crappiest companies. If you were a company that traded, let's say you were an oil company that was trading at 75 in January of 2020 and was trading at 25 i…”
Lewinsohn: Credit Hedge Funds Mistakenly Try Playing Private Equity Turnaround
“We think that too many hedge funds who did credit thought that all of a sudden they were in private equity and they can improve businesses. We don't think that that's our skill set. Frankly, we think if we think we can improve it probably means that other peop…”
Lewinsohn: Diameter views short positions as profit centers, not hedges
“And so our portfolio, we don't really think about shorts as hedges. We think about them as ways to make money in companies that no longer make money the way they used to.”
Lewinsohn: Diameter avoided packaging investments because Americans are consuming less food
“And that's why we haven't made a lot of recent investments in packaging is it seems that Americans are using less, right? Buying less food, even with not on GLP ones.”
Lewinsohn: Credit losses correlate with over-relying on capital structure seniority
“Will we invest in a business that we don't think is amazing because we think it's good enough where we are in the capital structure? Certainly. But if I look back at places where we've lost money and credit, do they line up in those type of situations more oft…”
Lewinsohn: Telecom has been Diameter's most active and profitable microcycle since COVID
“We've seen that telecom has been the microcycle that we've prosecuted the most since COVID, that's been incredibly profitable, and with limited bankruptcies.”
Lewinsohn: Repeat players receive different treatment in credit restructuring
“If you're a repeat player, then the market treats you differently than if you're a one-time player.”
Lewinsohn: Pure bankruptcy knowledge edge in distressed debt has competed away
“Distressed at investing was such a frontier, say at least 25 years ago, even before the financial crisis. You didn't need to really care if it was a sock company or a steel company. You knew bankruptcy. The other guys didn't. That has been competed away and is…”
Lewinsohn: Diameter avoids single-product and single-payer healthcare businesses
“And so we tend to stay away from things that are single product or single payer. We like it. If there's a mix of commercial Medicare and Medicaid, we like larger businesses.”
Lewinsohn: Creditor cooperative agreements surged in popularity over the last 18 months
“One thing you're seeing is co-ops, which are cooperative agreements between creditors to say, we're not going to do a deal with the company alone, neither should you, have really come into vogue over the last 18 months.”
Lewinsohn: Mean-reversion trading strategies fail during rapid technological disruption
“And a lot of trading only focused businesses eventually explode on those when the reversion to the mean doesn't work, particularly now where there's so much technological change that formerly stable industries become very different in a short period of time.”
Lewinsohn: Credit investors must obsess over downside risk instead of upside return targets
“One, you have to constantly be thinking about the downside protection in what you invest in. So instead of just always looking, a lot of people say, oh, I want to invest in something I can make 20% in. But you have to obsessively say, if the macroeconomic cont…”
Lewinsohn: Diameter avoids long-term residual risk in AI infrastructure financing
“We've not financed long-term residual risk. We think it's been too hard for us, but this is America. Everything can be trunched. We've invested at the top of the capital structure in an amortizing way.”
Lewinsohn: Diameter caps direct lending software exposure under 10%
“We've spent a lot of time making sure that we have sub 10% of our direct lending business in that space”
Lewinsohn: Writing forces investors to cite sources and eliminates cognitive biases
“Writing is a very helpful thing to boil down very complicated things to yourself and to prove to yourself that you're right. Because when you write, you usually need sources. How do I know this? Where do I know this from? And in that COVID blog, we had links t…”
Lewinsohn: Diameter bought travel-sector distress in 2020 after sitting out 2017–2019
“And so that's why in a year like 2020, where there was sadly for the world, a lot of distressed, we got very involved in rental car companies and airlines and cruise lines. But for most of 1718, 19, we were just involved in a few situations on the sidelines an…”
Lewinsohn: Credit investing requires legal analysis combined with macro and fundamental research
“We do a lot of things in credit that are in the shadow of the law. Right. Whether bankruptcy is coming or there's going to be litigation or what a document says, but that's not it. I also need to know what the price of oil is going to be. And I need to know wh…”