This interview features credit investor Scott Goodwin, who argues that the 2020s are shifting returns from shareholders to bondholders due to higher interest rates. His key principle: 'Know the Names'—deeply research companies so you can make multi-million-dollar decisions in minutes. He highlights three holdings: Carvana (risky, stock crashed), Sprint loans (bought cheap during COVID, later acquired at a premium), and Permian Basin energy bonds (bought at 70 cents, made 30% profit).
Scott Goodwin (Co-Founder of Diameter Capital Partners) discussed the core logic and opportunities in credit market investing on the program. The key takeaway: credit investing hinges on "Know the Names"—a deep familiarity with target companies enables major decisions to be made in minutes. He contr
Scott Goodwin (Co-Founder of Diameter Capital Partners) articulated the core philosophy of credit investing in the program. Key judgment: The essence of credit investing lies in "Know the Names"—deep familiarity with target companies enables major decisions to be made within minutes, making this the most important source of alpha in the current market environment (Goodwin). He contrasted the investment themes of the 2010s (zero interest rates, shareholder returns) with those of the 2020s (inflation, rising interest rates, creditor returns), and provided a detailed breakdown of different types of credit cycles and their corresponding investment opportunities.
Goodwin argues that the core theme of the 2020s is a systemic transfer of capital from shareholders to creditors, marking a stark contrast with the 2010s.
1. Pension Rebalancing: Pensions with return targets of 7-8%, when stocks are at historical highs, can purchase 30-year investment-grade corporate bonds (yielding 5.5-7%), directly "unwinding" liabilities and no longer requiring equity convexity.
2. Zombie Enterprise Value Transfer: Low interest rates during the pandemic led many companies to pile on debt, but with low coupons and maturities in 2027-2029. These bonds trade at 60-70 cents on the dollar, meaning creditors have effectively become equity holders—value transfer is merely a matter of time.
Goodwin argues that the core difference between credit investors and equity investors lies in their mindset: the former naturally focuses on "how much can I lose," while the latter focuses on "how much can I earn."
Goodwin notes: "Equity investors are relearning the importance of the liability side — just look at what happened with Carvana."
Goodwin emphasizes that the credit cycle is not just about macro events like 2002, 2008, or COVID; there are also ongoing micro cycles at the industry level, and deep familiarity with the underlying names is a prerequisite for seizing these opportunities.
Goodwin argues that in an environment where banks are reducing risk-taking and market liquidity is fragmented, speed (the ability to make rapid decisions) has become the most important source of alpha in credit investing.
Goodwin elaborates on how to align individual traits with company culture, and why "scale is the enemy of alpha."
1. Depth: Bring what you know best
2. Network: Given an unfamiliar area, figure it out within a week through your connections
3. Speed: Rapid analysis under tight time constraints
| Position | Guest Stance | Key Data |
|---|---|---|
| Carvana | Risk Warning (Case Study) | Stock price collapsed from highs; subprime finance business hit by rising rates; TAM shrank |
| Sprint (Loan) | Bullish (Executed) | Bought at 80+ cents during COVID, acquired by T-Mobile (investment grade) |
| Infor (Loan) | Bullish (Executed) | Bought at 80+ cents during COVID, acquired by Koch family (investment grade) |
| Hertz (First Lien / Subordinated Debt) | Bullish (Executed) | First lien bought at 75-80 cents; subordinated debt bought at 15 cents (option value based on surging used car prices) |
| Permian Basin Energy Companies (Parsley, CrownRock, Diamondback) | Bullish (Executed) | Fell from 100 to 70 cents in 2014; interest coverage maintained even with oil at $30-40 |
| Mississippi Lime Energy Companies (SandRidge, etc.) | Bearish (Executed) | Fell from 100 to 50 cents in 2014; worst basin |
| Chesapeake Energy | Neutral (Historical Context) | Issued 9% coupon bonds in 2003-2004; natural gas price forecasts consistently missed |
| NVIDIA | Neutral (AI-Driven Valuation Mentioned) | Stock price surged significantly, but credit markets do not cover such companies |
| Freeport-McMoRan | Bullish (Historical Case) | Opportunities in commodity company bonds after price collapses |
1. “Know the Names” is the highest principle in credit investing (Goodwin): This is not just a slogan—in Diameter’s trading floor, “you will hear it echoing through the hallways.” Because credit is an over-the-counter market with discontinuous liquidity, only thorough advance research enables multi-hundred-million-dollar decisions within minutes.
2. The first wave of selling in a credit cycle is “zero dispersion, high correlation” (Goodwin): People sell everything they can, which creates enormous opportunities—good assets fall to prices they should never reach. In the 2014 energy cycle, Permian (high quality) fell to 70 cents, while Mississippi Lime (low quality) fell to 50 cents, and most distressed funds instinctively bought the cheaper low-quality assets.
3. First/second quartile commodity company bonds during a crash are “unique opportunities” (Goodwin): If a company has a 12-24 month cash runway, one should bet on it—because the high volatility of commodities means prices will not stay low forever. Bonds bought at 5-10 cents during the energy cycle ultimately recovered at par.
4. Speed is the core source of alpha in the current credit market, but it must be combined with deep research (Goodwin): Providing liquidity as a mean-reversion strategy will eventually blow up. Diameter could decide to buy $350 million in software loans within 5 minutes during COVID because it had studied all software loans in 2019—knowing what was most defensive.
5. “Scale is the enemy of alpha” (Goodwin): Learned from the Anchorage experience—when a fund becomes too large, shorting shifts from “betting on specific events” to “index proxies,” making it impossible to change one’s mind when wrong. A $300 million position was tradable in 2012, but now should only be $50-60 million. Diameter proactively returned capital at the end of 2021.
6. Credit investing requires “imagination”—especially across capital structure layers (Goodwin): In the Hertz bankruptcy case, first-lien debt was at 75-80 cents, subordinated debt at 15 cents. By observing China’s reopening (May-June 2020), one inferred that U.S. used car prices would surge, buying subordinated debt as a “convex option”—because if used car prices skyrocketed, subordinated debt could become the controlling party in bankruptcy.
7. “I am more driven by failure than by success” (Goodwin): Whether it was failing at baseball, being dumped by a girlfriend, not getting promoted at Citigroup, or not becoming a partner at Anchorage—these failures are fuel. Now with a goal behind me, I am even more motivated. But intensity needs to be controlled; early on, I alienated others by being “like a bull in a china shop.”
8. The “best time” for private credit is when others are distracted by legacy issues (Goodwin): Many large private credit funds have legacy “problem years” to deal with, diverting their attention. Meanwhile, current new opportunities (first-lien, 50% loan-to-value, 11-12% yields) are very attractive—this is precisely the time for Diameter to enter.