“Overblown” Sell-off in Software Loans | Matthew Bloomfield on Public BDCs (Business Development Companies) and Collateralized Loan Obligations (CLOs)

The public BDC market is experiencing a 'overblown' sell-off, with well-structured, transparent firms like Palmer Square's PSBD trading at deep discounts despite strong underlying credit quality. Matthew Bloomfield of Palmer Square Capital Management argues that the panic is mispriced: his BDC holds large, liquid, broadly syndicated loans to high-EBITDA companies with sub-25 basis point non-accruals, yet trades at a wider discount than riskier private credit BDCs. The root cause? Market fear around AI-driven disruption in software, which has triggered a sector-specific selloff in syndicated loans—even though software's embeddedness in business workflows makes widespread disintermediation unlikely. Bloomfield contends that the real risk lies in the private credit market's opaque, non-tradable valuations, which are still marked at par despite deteriorating fundamentals. Meanwhile, in the CLO market, volatility is a hidden opportunity: falling loan prices allow managers to 'build par' by reinvesting paydowns at discounts, boosting long-term equity returns. Structural protections like over-collateralization and interest coverage tests ensure debt tranches remain safe even in downturns. The episode reveals that the most attractive credit opportunities today aren't in the panic zones—but in the disciplined, transparent, and structurally sound vehicles that can exploit market irrationality.