The Ledger · Near — one to five years

GP-07 The credit break arrives quietly

Status: OPEN

From The Rational Prophet (Book Four of The Laws of Game Theory)

The bet

The bet: The private-credit correction runs through gradual markdowns over many quarters rather than a single market-wide crash.
Win: Cumulative markdown above a fifth of the five portfolios, reached no sooner than the sixth quarter, with no quarter in which the high-yield spread closes above 1,000 basis points.
Lose: A single quarter in which the spread breaches that level, a cumulative markdown above a fifth reached before the sixth quarter, or a cumulative markdown below a fifth when the window closes.
Expiry: Three years.
Check it: Quarterly filings of the five largest listed business development companies, named at the back — fair-value marks, losses and payment-in-kind share; the ICE BofA US High Yield option-adjusted spread, series BAMLH0A0HYM2, free from the St Louis Fed.

In protocol form

Word for word from Appendix D of the book, the Prediction Protocol, where this bet is entered as The markdown. References to sections (§) are to that appendix.

Universe: the private credit portfolios of the five business development companies listed on a US stock exchange with the largest total investments at fair value in their most recent quarterly report filed before publication. The rule produces the list, as §3.9 sets out; the five names and the quarter they were drawn from are printed with the baseline, and the list does not change.
Source: their quarterly and annual reports, free on EDGAR, the public filing system of the US Securities and Exchange Commission; the credit series in §3.9 for the market test.
Definitions: the aggregate fair-value mark is the total fair value of the five portfolios divided by their total amortised cost, from the balance sheets. The payment-in-kind share is the income received in kind rather than in cash, interest and dividends together, as each lender reports it in its statement of cash flows, divided by total investment income, both for the fiscal year to date in the same reports. The cash-flow statement is used for every lender, because some income statements show only part of it. The cumulative markdown is the five companies' net realised and unrealised losses on investments only, without gains and losses on currencies and derivatives, added up quarter by quarter from the first quarter after publication, divided by their total amortised cost at baseline. Realised losses are included because a loan that is written off leaves the ratio of fair value to cost, and would otherwise vanish from the record. A crash is the series in §3.9 closing above one thousand basis points on any day inside a single quarter — the same threshold both credit bets use. A quiet revaluation is a cumulative markdown of more than a fifth, reached no sooner than the sixth quarterly report after publication, with no such quarter anywhere in the window. If a named company is merged, its successor's reports count in its place. If it stops reporting without a successor, it adds no further losses: missing evidence counts against the bet.
Baseline: the five names and the quarter they were drawn from; aggregate fair-value mark and payment-in-kind share, for each company and for the five together; and the level of the §3.9 series.

Baseline at publication

Reading date of record: 10 October 2026

What is recorded: The five lenders and the quarter they were drawn from · aggregate fair-value mark and payment-in-kind share, each of the five lenders and together · level of the §3.9 series
Value at publication: Drawn from the reports for the quarter ended 30 June 2026: Ares Capital · Blue Owl Capital Corporation · Blue Owl Technology Finance · Blackstone Secured Lending · FS KKR Capital. Fair value as a share of amortised cost 0.989 · 0.990 · 0.979 · 0.964 · 0.906, together 0.971 ($83.77bn against $86.25bn). Payment-in-kind share of investment income, from the statements of cash flows, first half of 2026: 15.5% · 10.7% · 12.5% · 6.6% · 13.5%, together 12.5%. High-yield spread 3.15%, or 315 basis points, on 8 October 2026, the latest value published (read 10 October 2026)

Author’s probability 25% that this bet scores HIT. Registered on 10 October 2026.

Sources

Not investment advice. The bet describes what the book expects to happen; nothing here is a recommendation to buy, sell or hold anything.

Last reviewed 10 October 2026