Clarence Rivette & Collateral

After more than 40 years in business, I have learned that capital is never just capital. Capital can help people build. It can help companies grow. It can give an operator the confidence to take the next step. It can turn an idea into a project, a project into an asset, and an asset into something that creates value for families, employees, investors, and communities. But capital can also create problems when it is not structured carefully.

Warren Buffett''s two rules of investing are so well-worn that we recite them without sitting with them. Rule one: do not lose money. Rule two: do not forget rule one.

When I sat with those rules in earnest, both at the beginning of my career and again at the beginning of this Fund, I found they are considerably more demanding than they appear. They do not loosely say, "try not to lose money." Do not lose money. Taken literally, that is a standard so stringent it would prohibit most investing activity altogether.

This rule, of course, was not meant to be taken literally. Buffett is describing a posture that places the preservation of capital above the pursuit of return, and the question I want to explore in this note is a simple one: what does that posture actually look like when you are making a loan?

The answer, I believe, is the idea this entire strategy is built on. It has everything to do with the word collateral.

At The Wirt-Rivette Group, we have spent decades working across financing, development, senior living, equipment, real estate, joint ventures, and operating businesses. We have worked with entrepreneurs, family-owned companies, healthcare systems, developers, borrowers, banks, and partners across many different situations. In short, we have experienced the difference between spreadsheets and reality.

Experience teaches you where the assumptions are too optimistic. It teaches you when the operator is credible. It teaches you when the collateral may hold value and when it may not. It teaches you which covenants matter and which ones only look good in a document. It teaches you that most mistakes are made before the loan is closed, not after it becomes a problem.

Two Legitimate Strategies with Different Risk Profiles

Let me describe two loans that might both appear, on a first read, to be attractive private credit opportunities. I present them side by side not to rank one against the other, but to illustrate a structural distinction that matters for how a private loan behaves under stress.

Loan A is a first-lien senior secured term loan to a SaaS business owned by a large well-regarded private equity sponsor. The loan is sized at 5.5x trailing EBITDA at roughly 10% all-in. Growth has been steady. The covenants reflect current market terms for sponsor-backed credits.

Loan B is a first-mortgage loan secured by a 200-unit Class B multifamily property in the Midwest, sponsored by an operator with a twenty-year track record in the submarket. The loan is sized at 60% loan-to-value against a third-party appraisal, at roughly 11% all-in, with a debt service coverage test, cash management controls, reserve requirements, and a personal guarantee.

Both are legitimate strategies. Senior secured direct lending to sponsor-backed companies has produced strong risk-adjusted returns for many managers over many cycles, and the best practitioners of that strategy run excellent businesses that occupy an important and enduring role in a diversified credit allocation. What I want to draw out is that the shape of the downside in each strategy is different, and that different shapes of downside suit different investor mandates.

What the Collateral Actually Is

In Loan A, the position is a first-priority lien on the assets of the operating business. The real economic value of a software-services company lives in its customer relationships, its employees, and its ongoing cash flows. If the business performs, the loan is repaid. If it stumbles meaningfully, the enterprise value that supports the credit can move, and a lender''s recovery path depends on whether the sponsor elects to inject equity, restructure, or pursue a sale.

In Loan B, the security is a first mortgage against a specific building with a specific address in a specific submarket. The building has rents, tenants, a roof, a boiler, and a tax parcel number. Its value can fluctuate, and any lender claiming otherwise is selling something, but it does not move in the same way enterprise value moves. In the worst case we can step in, cure the loan, stabilize operations, and exit the position over a reasonable horizon. Our forty points of equity cushion sit between us and a loss, and if that cushion erodes, we still hold legal rights to the asset itself.

Both are responsibly made loans. They sit at different points on the risk-return frontier because their collateral behaves differently under stress.

Margin of Safety, Translated

In asset-backed lending, margin of safety takes a measurable form: the loan-to-value ratio. A loan at 40% LTV means the collateral is worth 2.5 times the loan amount. A loan at 50% LTV means the collateral is worth twice the loan amount. A loan at 70% LTV means the collateral is worth 1.43 times the loan, which sounds like a margin until you consider that real estate valuations can plausibly move 20% to 30% in a disrupted cycle.

The arithmetic of LTV is the arithmetic of survival. Our Fund targets loan-to-value ratios between 35% and 50% because those ratios embed enough cushion to absorb serious cyclical pressure without crossing into catastrophic territory. They are boring ratios. We chose them for exactly that reason.

Charlie Munger used to say that he and Buffett had gotten rich not by being especially brilliant, but by consistently avoiding being stupid. I do not think there is a cleaner description of the discipline we are trying to practice.

Why ABF Requires an Operator''s Perspective

Reading collateral well is a craft, and the craft lives in the hands of operators more than in the hands of analysts. When you have signed a purchase order for a piece of specialty equipment, you know what the replacement cost is in a way a spreadsheet cannot teach you. When you have negotiated a commercial lease, you understand why a particular industrial building is worth more to one tenant than to another. When you have had to restructure debts during a downturn, you know which covenants hold up under pressure and which do not.

At this stage of my career, I am not looking for activity for the sake of activity. I am looking for the right next chapter. Beckett Industries is building something that I believe is needed in the market: an institutional private debt platform that combines collateral-first underwriting, conservative structures, active monitoring, strong governance, and a long-term view of partnership.

This is not simply about launching a fund. It is about building a perpetual platform; that distinction is important.

A fund can exist around a single market opportunity. A platform has to be built to make consistent decisions over time. A platform needs governance. It needs reporting. It needs process. It needs a clear investment philosophy. It needs people who understand that trust is earned slowly and can be lost quickly. That is a different kind of confidence, and it is the kind that matches our mandate. Rule one, after all, is do not lose money.