◼ FINANCE Bloomberg Businessweek April 20, 202026
THEBOTTOMLINE Thecoronaviruspandemicis leavingBDCs
andthebusinessestheylendto—manyofthemhighlyindebted,
private-equity-ownedcompanies—introuble.filings, the company said it will use proceeds to
repayoutstandingdebt,supportitsborrowers,and
potentiallymakenewinvestmentsinwhatit called
a moveto“playoffense.”
“Itis concerningtousthatGBDCfeltit neces-
sarytodoa dilutiveequityraisethisearlyinthe
economicdownturn,”Keefe,Bruyette&Woods
analystsRyanLynchandPaulJohnsonwroteinan
April1 report,referringtothecompanybyitsstock
ticker.Theycalledthemove“surprising”andsaid
it maybeparticularlypainfulforexistingshare-
holdersbecausethecompanyanditspeerswere
alreadytradingata significantdiscounttothevalue
ofitsholdings.
BainCapitalSpecialtyFinanceInc.,a BDCwith
$2.6billioninassets,indicatedonMarch 30 thatit● Home loan companies say they are in trouble, anda keyregulatoris resistinga bailoutWith the coronavirus crisis crushing the real estate
market, some on Wall Street are assailing a U.S. offi-
cial they blame for blocking a bailout of mortgage
lenders. It’s not Treasury Secretary Steven Mnuchin
or Federal Reserve Chairman Jerome Powell, who
are leading Washington’s effort to rescue the
economy.Rather,thetargetoftheirireis Federal
HousingFinanceAgencyDirectorMarkCalabria,a
libertarian economist whose job is regulating mort-
gage giants Fannie Mae and Freddie Mac.
The issue is whether the U.S. should step
in now to save nonbank mortgage servicers,
firms including Quicken Loans, Freedom
Mortgage,andMr.CooperGroupthatcollectpay-
mentsfromborrowersandmakesureinvestorsin
trillionsofdollarsofgovernment-backed bonds get
paid each month. With millions of homeowners
expected to start missing payments, the industry
says it needs an immediate lifeline to head off ser-
vicer failures that could trigger nothing less than
the collapse of the housing market.
Calabria argues that’s hyperbole. He’s refused
to let government-controlled Fannie and Freddie
provide support for servicers, saying there are
more pressing uses of their limited capital to help
bondholders and borrowers. His stance has made
him a target of criticism for trade groups such
as the Mortgage Bankers Association and somefinancialanalysts.“ThepresidentshouldfireMark
Calabria,”saysChrisWhalen,a bankanalystat
WhalenGlobalAdvisersinNewYork.“Heis taking
a childish,naiveapproachrightnowthatis border-
ingonnegligence.”Whalensayshe’sbeenfielding
phonecallsfromfinancialexecutivescomplaining
abouttheFHFAleader.
Calabriacountersthathe’snotseenanydataso
farthatindicatesservicersneedemergencygov-
ernmentfunds.Fornow,TreasuryandFedofficials
seemtoagree;they’vealsodeclinedtoorchestrate
a rescue.“Nothingweareseeingasoftodaysug-
geststhatthisis a systemicproblem,”Calabriasays.
“Whatweareseeingsuggeststhatforthenext
coupleofmonths,thisis sustainable.”
Calabria, who previouslyworked for Vice
President Mike Pence, is a devoted small-
government Republican with long-held opinions
that Washington shouldn’t bail out every stumbling
company or industry. A stark case in point: He’s
repeatedly said that if it were up to him, Fannie
and Freddie would have been allowed to fail during
the 2008 financial crisis. The two institutions play
a crucial role in the nation’s $10 trillion residential
mortgage market by packaging loans into securities
and standing behind them.
A common gripe among Calabria’s critics
is that he is obsessed with achieving a Trumpalso may raise additional equity while contending
witha floodofrequestsfromborrowerstodraw
downcreditlines.A spokeswomanforGoluband
a spokesmanforBaindeclinedtocomment.
OnApril8 theSECtemporarilyloosenedrules
forBDCstohelpthemandthecompaniesintheir
portfoliossurvive the pandemic. Amongthe
changes,BDCscanusethevalueoftheirholdings
asofDec.31—beforethevirushit—whensellingnew
seniorbonds,sotheydon’texceedthetypical2-to-1
regulatorycapondebttoequity.Inotherwords,
theycanleverupevenfurther.�KelseyButlerand
HeatherPerlberg12/31/19 4/13/202 5%0-25-50-75● Change in share
price of nonbank
mortgageservicers
sinceDec.31, 2019
PennyMacFinancial
Services
Mr.Cooper
Ocwen Financial● Overall market for
private credit$812b
A Fight Brews Over Mortgages