BREAKINGVIEWS-‘The Big Short’ confab makes merry amid credit storm

By Stephen Gandel

LAS VEGAS, Feb 26 (Reuters Breakingviews) - Wall Street may be buried in snow, but the mood this week at SFVegas — the annual conclave of financiers made infamous by Michael Lewis’s "The Big Short" — was strikingly sunny. Accumulating worries about credit cockroaches or software-sector blowups barely clouded the outlook. Instead, 10,000 attendees crowded the halls of Sin City’s structured‑finance gathering to celebrate Wall Street’s continued mania for byzantine IOUs, treating recent upsets as opportunities for ever more slicing and dicing.

Industry conferences tend to be friendly affairs, especially when bankers and lawyers are mingling amid bespoke cocktails and glazed pork buns. Still, the gap between the enthusiasm and recent woes in credit markets was stark. Shares of business development companies, which invest in debt tied to leveraged buyouts and other risky borrowers, have dropped 17% in six months, according to the MVIS US BDC Index, as doubts rise about the value of their loans. On Monday, Fitch reported that the default rate on loans held by private‑credit funds rose to 5.8% in January, the highest since the agency began tracking the metric in August 2024.

Granted, some attendees acknowledged problems for software companies, among non-bank lenders’ most prolific customers. Cheap tools powered by artificial intelligence, the thinking goes, could make enterprise applications obsolete, vaporizing borrowers’ subscription-based revenue. Yet this, too, was largely brushed off by pointing to still-resilient sales and mostly timely debt repayments. On a notably divided Tuesday panel, one fund manager argued that software firms carried excessive leverage. Another, from a major insurer, warned that markets are deteriorating at an alarming clip. The moderator, an investment banker, surprisingly declared the consensus to be that these markets were merely “oversold.”

Still, panelists and bankers predicted a busy year for dealmaking. Issuance of structured debt to fund AI-powering data centers doubled in 2025 and is expected to double again this year, according to a banker who specializes in data center financing. Debt raised by funds that accumulate and slice up risky loans, already notching a record $210 billion in 2025, is projected to climb further.

Problems in one corner of the market reliably inspire new products, new structures, and new fees. Three panels were dedicated to helping funds, mostly private equity, refinance troubled assets or raise fresh cash. Another hot topic was collateralized fund obligations, which issue debt to accumulate other unsold fund stakes. Cryptocurrency lender Ledn touted the first asset‑backed security supported by bitcoin loans. The deal was oversubscribed, despite the digital coin’s notorious volatility.

The problem is that these layers of structured fixes rest atop primary markets for homes, cars and companies. Should those foundations weaken, the towering debt built on them will wobble too. But at SFVegas, that basic rule seemed easy to forget.

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CONTEXT NEWS

SFVegas, the largest annual U.S. gathering of structured finance professionals, is taking place at the Las Vegas Aria Casino and Hotel from February 22 to February 25.