Hedge fund Rubric Capital has said that some private credit managers are using accounting techniques to make balance sheets appear less leveraged, according to a report by Reuters citing a letter from the firm.
It said certain business development companies (BDCs) are temporarily shifting borrowings off their balance sheets around quarter-end, with the debt reappearing shortly afterwards.
In the February letter, Rubric said the practice is aimed at preserving investor confidence and maintaining distributions, warning that concerns around potential payout cuts are driving “Enron-like accounting games”. The firm said the borrowings involve repo-style financing provided by a single investment bank, though it did not identify either the lender or the BDCs involved
The BDC industry oversees more than $300bn in assets and represents roughly a quarter of US direct lending, according to the Bank for International Settlements.
Rubric founder David Rosen previously spent a decade at Point72 and earlier worked in restructuring at Blackstone Group. The firm manages around $3bn in assets.
