MediumCredit Sleeves Collapse Bubbles. I only want you to read this paragraph… | by Ryan McGrath | Jul, 2026 | MediumSitemapOpen in appSign up<br>Sign in

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Credit Sleeves Collapse Bubbles

Ryan McGrath

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I only want you to read this paragraph from the latest Semi-Analysis novella.<br>Press enter or click to view image in full size

The only other time I’ve heard about kind of rating substitute, it was called a credit sleeve.<br>Let’s talk about trust and backstops<br>I often think of my capstone college professor, who worked at a Texan energy company in the early 2000s. He became CEO after Enron blew up and destroyed many other energy companies with it. Here’s a bullet point from his resume at the time to understand what he was working with:<br>- Brokered landmark $6.2B debt bank restructuring deal — leading company away from a potential bankruptcy filing.

Enron rode the wave of de-regulation, reaching huge profits in futures trading. They caused blackouts in California and jacked up energy rates. They were not good people, but it wasn’t known at the time and they had a AAA credit rating while they were doing this.<br>Enron did a lot of round tripping to inflate profits. So did his company.<br>…U.S. Securities and Exchange Commission issued a settled cease-and-desist order against related to “round trip” energy trades… trades generally produced no profit or loss but were designed to increase reported trading volumes and improve the companies’ rankings

Somewhat unrelated, here’s the Nvidia backstop terms from a different Semi-Analysis post:<br>Press enter or click to view image in full size

Margin Calls, Debt Refinancing<br>had a credit sleeve agreement with Enron. Their credit was poor, and Eron was blue chip. made futures trades based on Enron’s credit. When Enron failed, credit dropped to something more realistic and they got margin called hard.<br>Even if you aren’t magnifying risk with derivatives, companies running on debt will need to refinance at some point. As a concrete example in 2032, Corweave needs $7.5 billion.<br>Coreweave has this example debt:<br>$7.5 billion…. fixed rate tranche financed at approximately 5.9%… matures in March 2032 and is secured by substantially all assets of CoreWeave Compute Acquisition Co

$7.5B @ 5.9% for 6 years is $1.4B interest. If it was instead at 9.71%, there would be an extra $1B of interest due in 2032.<br>~9.7% is currently the rate you would pay if you wanted to get a personal loan with good credit. ~9.7% interest is a little high today, but it’s not out of a historical norms.<br>Contagion is Foundational<br>If at any time and credit rating falters, many Neo clouds will have the exact same credit shock. This is an incrediblely concentrated and correlated risk.<br>When Enron went down, it could charitably be described as a credit freeze for the industry. Everyone knows Enron took out Arthur Andersen, but here’s some other casualties:<br>Dynegy: Permanently crippled by merger collapse and scandals.<br>Mirant Corporation: Filed for bankruptcy when credit markets froze.<br>Reliant Energy: Forced to liquidate massive assets to survive.<br>CIBC: Paid $2.4 billion for masking Enron’s debts.<br>Citigroup & J.P. Morgan: Paid $2 billion over fraudulent financing structures.<br>Enron at its peak was valued at ~$130B inflation adjusted.<br>Nvidia is valued at $511B.<br>Nvidia is the pole holding up the tent.

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Written by Ryan McGrath<br>0 followers<br>·1 following

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