Software's on Sale. Is the Correction Over? Ft. (Steve Tananbaum, Founder & CIO, GoldenTree Asset Management) | 18 Jun 2026 | The Bridge Ep. 9 · Nuggets
Leaders, Investors & Entrepreneurs//15 min read/youtu.be
Software's on Sale. Is the Correction Over? Ft. (Steve Tananbaum, Founder & CIO, GoldenTree Asset Management) | 18 Jun 2026 | The Bridge Ep. 9
"The bullcase is you can buy growing companies revenue and ibida for 70% off what private equity firms paid... software is on sale." - Steve Tannenbaum [00:00:51]
"You still have several hundred basis points you've only made about half the move... it's usually gone well over a thousand basis points and you might be only six or 700 basis points from 400 basis points." - Steve Tannenbaum [00:01:11]
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"We want to be with management teams that are not trying to reinvent themselves... if anything manage their business as if it is declining precipitously and we found that that has the best results." - Steve Tannenbaum [00:06:06]
"There's going to be software companies that are going to be like Hermes that go on to amazing things and they're going to be ones that are like Sears that have to liquidate." - Steve Tannenbaum [00:09:00]
"To get a broader distress cycle you need a bad economy or a bad underwriting cycle and I don't think the underwriting cycle broadly was bad." - Steve Tannenbaum [00:10:19]
"We are not scenario investors we pick a base case we look for margin of safety and if we adjust our base case we adjust our base case." - Steve Tannenbaum [00:18:47]
"Good pick versus bad pick as we've always defined it is if you're doing it at kind of the time of the underwriting exactly it's good but if you're doing it retroactively to hide some issues and that would be bad." - Steve Tannenbaum [00:25:35]
Speakers & Credentials
Sonali Basak: Host of "The Bridge by iCapital" and financial journalist, facilitating deep-dive conversations into credit markets, distress cycles, and macroeconomic trends.
Steve Tannenbaum: Founder and Chief Investment Officer (CIO) of Golden Tree Asset Management. He manages $70 billion in assets [00:00:23] and has been a portfolio manager for 36 years. He is a prominent figure in distressed debt, opportunistic credit, and Collateralized Loan Obligations (CLOs), having won CreditFlux's Manager of the Year award three times [00:21:28].
1. Executive Summary
The software sector is currently undergoing a massive valuation correction, presenting a profound dichotomy: assets are trading at up to a 70% discount to what private equity paid, yet historical patterns suggest the sell-off may only be halfway complete.
A systemic distress cycle is not imminent; the current environment is better characterized by "opportunistic credit" opportunities driven by idiosyncratic company struggles rather than a fundamentally broken underwriting cycle.
Historical analogues—such as the gradual decline of print media in the 2000s and the resilience of TV programming before cord-cutting—serve as vital frameworks for predicting how long it takes for enterprise values to collapse in disrupted industries.
The private credit market is facing an impending reckoning regarding asset "marks," with growing dispersion expected between managers who properly write down struggling assets and those who rely on retroactive "Payment-in-Kind" (PIK) structures to obfuscate poor performance.
Despite macro uncertainties, Golden Tree operates on a strict "base case" underwriting model (projecting low-to-mid 2% GDP growth and mid-to-high 2% inflation for 2026) rather than attempting to trade wildly divergent economic scenarios.
2. Chronological Table of Contents
[00:00:36] - The Software Sector: Bull vs. Bear Dynamics
[00:01:49] - Historical Analogues: Print Media, TV, and Enterprise Value Decay
[00:03:07] - Valuations: Public Markets vs. Credit Markets
[00:04:40] - Navigating Industries in Transition & Management Psychology
[00:09:28] - Defining Distress vs. Opportunistic Credit
[00:16:22] - DIP Financings and Fraud: The First Brands Case Study
[00:20:13] - The Spectrum of Liquid vs. Illiquid Credit & CLOs
[00:24:53] - The Upcoming Dispersion in Private Credit Marks & PIK
[00:28:28] - Recovery Timelines: Lessons from the Energy Cycle
3. Detailed Thematic Summary
Theme 1: The Software Valuation Conundrum
The Bull Case for Software: Tannenbaum notes that investors can currently acquire growing software companies—specifically their revenue and EBITDA—at a staggering 70% discount off what private equity firms paid during the market peak [00:00:51].
The Bear Case for Software: Conversely, history shows that major market corrections usually move over 1,000 basis points. Currently, the market has only moved 600 to 700 basis points away from the 400 basis point mark, implying the selloff might only be halfway complete [00:01:11].
Public vs. Credit Arbitrage: There is a severe valuation gap between markets. Similar software companies trade at 8 to 10 times EBITDA (or 2 to 3 times revenue) in the public equity markets, while they can be created in the credit markets at roughly 2.5 to 3 times EBITDA and less than 1 times revenue [00:03:14].
The Hermes vs. Sears Divergence: Tannenbaum models the future of software like the retail sector in 2000. Some software companies will be like Hermes, achieving massive longevity and success, while others will be like Sears, facing structural liquidation [00:09:00].
Theme 2: Deep-Time Historical Context & Industries in Transition
The Delayed Collapse of Print Media: The internet began fundamentally challenging classified ads in 2000, but it wasn't until 2005 that the enterprise values of newspaper companies began to fall precipitously—a five-year lag between disruption and financial devastation [00:02:08].
The TV Programming Illusion: Television programming maintained good nominal growth and double-digit value creation for 15 to 20 years; the pain was strictly delayed until the critical mass of "cord cutting" materialized [00:02:24]. By 2007, private equity purchases like the Tribune Company were unmitigated disasters because the trend had already rolled over [00:02:46].
Profiting from the Directory Business: Despite being a "horse and buggy" transition industry, Golden Tree made over $700 million by investing heavily in directory companies like Thrive. They succeeded by underwriting the assumption of a precipitous falloff in revenue and partnering with management teams who accepted the decline rather than wasting capital trying to invent a new core business [00:04:55].
Theme 3: The Spectrum of Opportunistic and Distressed Credit
The Absence of a Systemic Cycle: A true distress cycle requires either a terrible economy or a fundamentally broken underwriting cycle. Tannenbaum argues the 2018-2019 software underwriting was not broadly flawed—it simply predated the scale of ChatGPT and generative AI [00:10:19].
The Michaels Rollercoaster (Idiosyncratic Stress): Michaels faced immense stress due to Chinese supplier issues and war impacts. Even though competitor Joanne went out of business, Michaels' bonds dropped to the mid-50s before management successfully secured product lines. Golden Tree refinanced them earlier this year, capturing returns that annualized near 100% last year and 20% this year [00:12:29].
Liability Management Exercises (LMEs): Following Apollo's playbook with Caesars, sponsors now use loose covenants to launch LMEs that delay bankruptcies. However, Tannenbaum warns that the long-term win/loss record for companies utilizing LMEs is poor; most eventually file for bankruptcy anyway [00:11:12].
DIP Financing Risks: Debtor-in-Possession financings are traditionally very safe, but cases like First Brands—which Tannenbaum categorized as having "no handle on their financings" and bordering on fraud—burned through their allocated capital entirely, showing the danger of roll-up stories in distress [00:16:44].
Theme 4: Private Credit "Marks", Illiquidity, and PIK
The Great Marking Dispersion: Currently, roughly 70% of broadly syndicated loans trade at par or above [00:20:55]. However, in private credit, intense dispersion is incoming. Managers use different pricing services, creating situations where identical assets could be "fairly" marked anywhere from 85 to 95, or unfairly marked at 90 when underlying cashflows are 50% below underwriting expectations [00:26:08].
Good PIK vs. Bad PIK: Payment-in-Kind (PIK) interest is under the microscope. "Good PIK" is structured deliberately at the time of underwriting (e.g., the Boots deal) [00:25:21]. "Bad PIK" is implemented retroactively purely to obfuscate distress and hide a company's inability to pay cash interest [00:25:35].
Theme 5: Macro Projections and Portfolio Construction
The 2026 Macro Baseline: Golden Tree is underwriting to a 2026 economy growing in the low-to-mid 2% range, with inflation settling in the mid-to-high 2% range [00:17:51].
Base Case Conviction vs. Scenario Planning: Tannenbaum rejects "scenario investing." They model a strict base case to demand a deep margin of safety. For instance, they bought a third-out chemical company tranche at 11 cents, underwriting a scenario where even in a downside, they recover 9-10 cents, while retaining a 35% probability the bonds recover to par [00:19:33].
Cyclical Recovery Timelines: Using the 2020 energy crash as an analogue, Tannenbaum notes that cyclical industries typically sort winners from losers within 24 to 36 months. By 2022/2023, oil services had fully recovered to prior peaks [00:29:06]. He expects software to follow a similar 24-month horizon to establish clarity [00:29:30].
The Reference Vault
4. Data & Figures
Data Point
Value
Context
Timestamp
Golden Tree Asset Management AUM
$70 Billion
Total assets under management by Steve Tannenbaum's firm.
The "Hermes vs. Sears" Dispersion Paradigm [00:09:00]
Instead of viewing a distressed sector as a monolith, this framework demands segmenting the industry based on structural longevity. In the early 2000s retail collapse, both Hermes and Sears were technically "retail." However, Hermes possessed inelastic pricing power and brand permanence, allowing it to reach historic valuations, while Sears was structurally obsolete and liquidated. Applied to today's software market, credit investors must ignore sector-wide ETFs and ruthlessly underwrite which software platforms are "Hermes" (mission-critical infrastructure) and which are "Sears" (easily replaceable, legacy tech architectures).
The Management "Precipitous Decline" Heuristic [00:06:06]
When investing in a dying or transitioning industry, the greatest risk is not the sector's decline, but management's ego. Tannenbaum's rule is to actively avoid management teams trying to "reinvent" the company into high-growth areas where they possess no operational edge. The most profitable framework for sunset industries is partnering with executives who accept their reality and optimize strictly for cash flow, managing the business as if it will decline precipitously.
Good PIK vs. Bad PIK (The Obfuscation Filter) [00:25:35]
Payment-in-Kind (PIK) interest allows borrowers to pay interest with more debt rather than cash. This mental model categorizes the intent behind the accounting. "Good PIK" is structural—built into the initial underwriting to give a fundamentally sound company runway during a known transitional phase. "Bad PIK" is retroactive—a panicked amendment forced upon a failing company to prevent an immediate default, serving primarily to allow the private credit manager to artificially maintain the asset "mark" at par.
Base-Case Margin of Safety over "Scenario Investing" [00:18:47]
Many modern funds try to balance upside, base, and downside scenarios to justify a trade. Tannenbaum rejects this, enforcing a strict adherence to a single base case. The model dictates that if you are wrong by a mere 1% on growth or inflation, and that destroys your margin of safety, the investment is un-underwritable. The focus shifts entirely to downside protection relative to a rigidly defined base macro state.
The LME Delay-and-Pray Cycle [00:11:12]
Liability Management Exercises (LMEs) are aggressive restructuring maneuvers used by private equity sponsors to pit creditors against each other, carve out assets, and delay formal bankruptcy. The framework acknowledges that while LMEs create short-term "fixes" and allow sponsors to hold onto equity optionality, the long-term empirical win/loss record is dismal. Most LMEs ultimately fail to prevent insolvency, meaning credit investors must view them as tactical delays rather than fundamental cures.
6. Anecdotes
The Delayed Collapse of the Classified Ad Empire [00:02:08]
Context: Tannenbaum uses this story to explain why the software market might have further to fall. Despite the internet fundamentally destroying the utility of newspaper classified ads in 2000, it took an agonizing five years (until 2005) for the enterprise values of these companies to reflect reality. This anecdote perfectly illustrates that technological disruption does not immediately equate to financial repricing; legacy revenue models create a "zombie phase" that lulls investors into a false sense of security before the precipitous cliff.
The Tribune Company Disaster of 2007 [00:02:46]
Context: To further the point on timing, Tannenbaum cites Sam Zell's leveraged buyout of the Tribune Company in 2007. The transaction was a historic disaster precisely because it occurred after the industry metrics had fundamentally rolled over. It highlights the danger of stepping in to catch a falling knife in a transitioning industry without requiring a massive discount to historical enterprise value.
Mining Gold in the Yellow Pages (The Thrive Trade) [00:04:55]
Context: Tannenbaum shares how Golden Tree made over $700 million investing in the directory business (Thrive), an industry universally considered a "horse and buggy" dead end. By underwriting the worst-case scenario and partnering with a management team strictly focused on harvesting cash flow rather than attempting a pivot, they extracted massive yield from a dying sector. It is the ultimate testament to the idea that there are no bad assets, only bad prices and bad management.
The First Brands DIP Financing Mirage [00:16:44]
Context: Debtor-in-Possession (DIP) financing is supposed to be the safest, "first-in-line" asset class in credit. However, Tannenbaum recounts the recent First Brands bankruptcy, describing it as bordering on fraud. The company rapidly burned through their "safe" DIP cash because management had entirely lost control of their rollup financing model. The anecdote warns that even structural seniority cannot protect capital from gross managerial incompetence.
The Michaels Rollercoaster and Supply Chain Panic [00:12:29]
Context: To differentiate "opportunistic" credit from fundamental distress, Tannenbaum tells the story of Michaels. Despite their main competitor (Joanne) failing, Michaels' bonds collapsed to the mid-50s purely due to transient fears over Chinese supply chains and geopolitical shocks. Because the underlying business was sound, management solved the inventory issue, the bonds rallied violently, and they refinanced, delivering nearly 100% returns to opportunistic buyers who recognized the difference between temporary stress and structural ruin.
7. References & Recommendations
Geopolitical & Historical Events
The 2000s Media/Telecom Transition: Used to contextualize the lag between tech disruption and valuation collapse in print and TV. [00:02:08]
The 2010s Directory Companies Collapse: Referenced as a highly profitable structural decline investment for Golden Tree. [00:09:46]
The 2020-2023 Energy Cycle: Cited to demonstrate that cyclical disruptions typically take 24 to 36 months to sort winners from losers. [00:29:06]
The FTX & Mt. Gox Fallouts: Mentioned to differentiate broad industry distress from isolated, fraudulent implosions in crypto. [00:09:53]
Concepts & Technological Shifts
ChatGPT & Generative AI: Cited as the fundamental shift that retroactively exposed the vulnerability of 2018-2019 software underwriting vintages. [00:10:36]
Hyperscalers & LLMs: Highlighted to explain where the current capital expenditure boom is concentrating and how infrastructure demand is reshaping costs. [00:07:21]
Public BDCs (Business Development Companies): Referenced as a publicly observable proxy for tracking the rising levels of PIK and market valuations. [00:25:57]
Structured Products & Security Risk Transfer (SRT): Pointed out as highly attractive pockets of the credit market due to recent capital vacuums. [00:15:28]
Collateralized Loan Obligations (CLOs): Discussed as a core Golden Tree product structure where scaling allows for precise tactical overweighting of debt. [00:21:13]
Companies, Brands & Institutions
Golden Tree Asset Management: Tannenbaum's $70B alternative asset management firm, famous for distressed debt and CLOs. [00:00:23]
Hermes vs. Sears: Used allegorically to represent the extreme bifurcation of outcomes in disrupted industries. [00:09:00]
Tribune Company: Referenced as a cautionary tale of a poorly timed leveraged buyout in a dying industry. [00:02:46]
Thrive: The directory company Golden Tree heavily invested in, netting a $700M profit. [00:05:09]
Michaels & Joanne: Craft retailers used to contrast idiosyncratic stress with actual bankruptcy. [00:12:10]
Boots (Walgreens): The massive UK pharmacy chain cited as a successful, illiquid opportunistic credit deal utilizing "Good PIK." [00:13:01]
Apollo Global Management & Caesars: Apollo is credited with innovating modern Liability Management Exercises (LMEs) during the Caesars restructuring. [00:11:12]
First Brands, Tricolor, & Saks: Referenced as major recent examples in the Debtor-in-Possession (DIP) financing space, with First Brands acting as a cautionary tale. [00:16:44]
CreditFlux: The industry standard award body that named Golden Tree CLO manager of the year three times. [00:21:28]
People
Kunal Shah: Tannenbaum's colleague at Golden Tree, who notes the impending, unprecedented dispersion in private credit manager performance. [00:24:41]
8. The Bottomline (by AI)
The private credit market is rapidly approaching a reckoning driven by a lack of standardization in asset valuation "marks" and the over-utilization of bad Payment-in-Kind (PIK) structures to hide underlying distress. For allocators and investors, the immediate actionable mandate is to audit private credit portfolios for exposure to legacy 2018-2021 software vintages, as the technological disruption caused by hyperscalers and LLMs has permanently altered the unit economics of those assets. Watch closely for a massive widening in performance dispersion among credit managers over the next 24 months—those refusing to mark down their books will be exposed, while opportunistic buyers with strict margin-of-safety underwriting will capitalize on forced liquidations.
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