Disciplines

Venture debt is lending to a company that is still spending more than it earns, usually alongside or shortly after an equity round. The lender is repaid from the runway that equity created, so the underwriting is really a study of burn: how much cash is in the business, how quickly it leaves, and what has to be true for the next round to close.

Peter DeCaprio looks for companies whose revenue is already visible and repeatable, where the loan extends the runway rather than replacing equity that could not be raised. He requires a clear picture of the capitalization table, a sensible amortization schedule, and covenants that let the lender act well before the cash is gone.

He declines situations where the debt is the plan, where the equity sponsors have stopped writing checks, or where warrant coverage is offered in place of a credit case rather than on top of one. A good venture loan is boring on the day it is made and boring on the day it is repaid.

Distressed credit means buying the obligations of a company whose ability to pay is in doubt, at a price that reflects the doubt. The work differs from ordinary credit analysis because the question is no longer whether the borrower will perform but what each class of creditor recovers if it does not.

Peter DeCaprio begins with the capital structure and the documents that govern it: where the security sits, what the covenants permit, who controls the process if the company is restructured, and what the assets would fetch outside of it. He wants a business that still has a reason to exist, customers who still need it, and a balance sheet problem that can be separated from the operating problem.

He declines cases where the operating business itself is dying, where the documents let a sponsor move collateral away from the creditors, or where the recovery depends on an outcome nobody can underwrite. The best distressed positions are the ones where patience is the main thing being paid for, and the price already assumes a worse ending than the facts support.

High yield bonds sit below investment grade because the issuer carries more debt, less certainty, or both. Peter DeCaprio approaches the market as a researcher rather than a buyer of yield: the coupon is the last number he looks at, after the free cash flow, the maturity schedule, and the structure that decides who is paid first.

He favors issuers whose cash generation covers the interest with room to spare and whose next maturity can be met from operations rather than from a market that may be closed when the date arrives. He reads the indenture for what it allows the company to do to its bondholders, since the loosest documents tend to be written in the friendliest markets.

He declines bonds whose only support is the assumption of refinancing, issuers whose cash flow is a forecast rather than a record, and anything where the yield is high mainly because the structure is complicated. Independent research matters most here, because the ratings and the sell-side commentary are already in the price, and only the work that is not in the price can earn a return.

Private credit is lending negotiated directly with a company rather than bought in a public market, and lower middle market companies are where Peter DeCaprio does most of this work. The attraction is control over the document: security, covenants, reporting, and amortization are written for the specific business rather than inherited from a template.

He underwrites the borrower the way an owner would, spending time with management, the customer list, and the working capital cycle before he looks at the rate. He requires collateral he can value on his own, financial reporting frequent enough to catch a problem early, and covenants that give the lender a seat at the table when something changes.

He declines loans where the sponsor's equity is thin, where the reporting comes late or only in summary form, or where the only exit is a sale that has to happen on a schedule. Private credit rewards the lender who stays involved after the closing, and that involvement is part of the discipline rather than an afterthought.

Closed end funds issue a fixed number of shares and then trade on an exchange, so the market price and the value of the portfolio can drift apart for long stretches. That gap is the opportunity. Peter DeCaprio studies what the fund actually owns, how much borrowing sits on top of it, what the manager charges, and how the distribution is funded, since a payout that returns capital while calling it income is a warning rather than a feature.

He looks for funds whose holdings he could value independently and whose discount is wide for reasons that are temporary: a forced seller, an unpopular sector, a distribution cut the market has overreacted to.

He declines funds whose assets are illiquid enough that the stated value is a guess, funds where the borrowing turns a modest drawdown into a permanent one, and any case where the discount is really a fee that will never be recovered. Contrarian positioning in this corner of the market is quiet work: buying what has been abandoned, and waiting for the arithmetic to be noticed.