Black Bear Value Partners Q2 2026 LP Letter

Black Bear Value Fund, LP (the “Fund”) returned -3.6% in June and +1.5% YTD. The S&P 500 returned -1.0% in June and +10.2% YTD.

“Those are my principles. If you don’t like them...well, I have others.” – Groucho Marx To My Partners and Friends: - Black Bear Value Fund, LP (the “Fund”) returned -3.6% in June and +1.5% YTD. -

The S&P 500 returned -1.0% in June and +10.2% YTD. - The HFRI Index returned +0.5% June and +7.1% YTD. - We do not seek to mimic the returns of the S&P 500 and there will be variances in our performance.

Note: Additional historical performance can be found on our tear-sheet. After several disappointing years, I'd be lying if I said I haven't thought about the Groucho Marx quote more than once. It's tempting after a stretch like ours to reinvent yourself—to chase what's working, rewrite your investment philosophy, or convince yourself that discipline is overrated.

That won't be this letter. I remain confident in our long-term opportunity, but please do not confuse confidence with satisfaction or complacency. I am deeply dissatisfied with our recent results.

This letter is an attempt to explain why I believe the gap between our performance and the underlying value of the portfolio has become unusually wide—and why I remain invested alongside you. Today's market reflects extraordinary optimism in many of the largest and most widely owned securities. That optimism is not reflected in the areas where we are invested.

I believe our defensive positioning remains the prudent course—not because I expect to predict the next market move, but because I believe we own quality businesses at sensible prices with very little, if any, future success already embedded in their valuations. Our short book is concentrated in businesses whose valuations appear to assume bullish business fundamentals or capital structures that we believe are unlikely to prove durable. We remain heavily invested across the energy and commodity complex.

Years of capital underinvestment have left these industries vulnerable to unexpected increases in demand or disruptions in supply. Our investments span natural gas, oil (both onshore and offshore), and thermal and metallurgical coal. While the ultimate outcome of the Iran conflict is unknowable, I believe the need for these commodities will continue to grow over time.

These markets remain structurally tight, making them susceptible to significant price moves when unexpected events occur. We also continue to own businesses positioned to benefit from the long-term need for additional housing, as well as select financial services companies, including a bank turnaround we have discussed in prior letters and a large-cap bank undergoing what we believe is an underappreciated merger. As discussed previously, many of our portfolio companies are emerging from capital investment cycles and entering the most cash-generative stages of their development.

Some have begun to re-rate, but I believe we remain in the early innings. In the meantime, these businesses continue to compound value by generating substantial free cash flow, paying dividends, repurchasing shares, and strengthening their competitive positions. The broader themes of the portfolio remain similar to our previous letter: - Housing (Distributor + large landowner in California) - Structurally underbuilt housing with a rising need as millennials form households.

- Metallurgical coal (coal for steel) – Significant underinvestment in a needed input for worldwide steel consumption particularly in Asia and India where high-grade met coal resources are limited. - Royalties/Energy/Natural resources/Commodities – Significant underinvestment in natural gas, oil and thermal coal which are necessary for the world's economies to function and grow. - Regional bank turnaround – Flagstar has an exceptional management/board that are ahead of the game in turning their businesses around.

At the same time, we are short similar companies with management teams that are obfuscating/ignoring the issues and have unhealthy balance sheets (some rhyme with our shorts of Silicon Valley Bank/First Republic). Breakdown of PNL Components Year-to-date, our long investments generated 4.1%, while our short positions reduced returns by 2.3%. Although frustrating in the current market environment, we believe our short book continues to provide valuable downside protection should market conditions change.

Credit Shorts/Equity Shorts We maintained our short equity exposure at approximately 43% during the second quarter. We also increased our credit short exposure by adding a short position in high-yield credit, a position we have owned in prior years. Credit spreads have tightened back to historically low levels, and we believe the market is materially underestimating the risk of future credit impairment.

While I do not discuss individual short positions, our short book continues to reflect several recurring themes that are largely unchanged from the first quarter: - Private credit lenders/private equity – We remain short a basket of companies exposed to the private credit ecosystem. While there are many thoughtful investors in the space, it has attracted enormous amounts of capital in recent years. In our view, that has led some sponsors to pay excessive prices and extend credit on increasingly borrower-friendly terms.

- AI “wannabes” – AI will undoubtedly reshape many industries, but we believe we remain early in its economic lifecycle. Many companies have repositioned themselves as AI beneficiaries despite questionable business models, relying more on promotional narratives than durable competitive advantages. - Banks/Bridge lending– We remain short a bank that reminds us of aspects of our Silicon Valley Bank and First Republic shorts.

We believe its reported financial strength materially overstates its underlying economic reality. More broadly, many bridge lenders—including this bank—are extending and restructuring troubled loans rather than recognizing losses. We believe those losses are being deferred, not avoided, and expect additional dividend reductions and capital pressure over time.

- Buy-now/pay-later lenders – These companies lend to some of the weakest consumer credits through small-dollar, short-duration loans. While the model can perform adequately in benign credit environments, we believe it now faces two headwinds: weakening lower-income consumer health and intense competition in what is ultimately a commodity product. Historically, that combination has not produced attractive long-term economics.

- Legacy data centers – These businesses require significant capital investment while generating only mediocre leveraged returns on capital. We believe the accounting often obscures the underlying economics, leverage remains elevated, and enthusiasm surrounding AI has indiscriminately lifted valuations across the sector. Top 5 Businesses We Own Builders FirstSource (BLDR) BLDR appreciated approximately 9% during the second quarter but remains down roughly 13% year-to-date amid continued weakness in the housing market.

New home demand has softened as affordability challenges continue to weigh on buyers. We expect 2026 free cash flow to be approximately $500–800 million, representing a 5–9% free-cash-flow yield. While housing activity remains near cyclical lows, we believe BLDR should be able to sustain this level of cash generation.

As a reminder, BLDR is a manufacturer and supplier of building materials focused primarily on residential construction. Historically, the business was highly cyclical, with limited pricing power because much of its revenue came from commodity products such as lumber. Since the Global Financial Crisis, however, the company has transformed its business, growing its higher-value-added operations to more than 40% of revenue.

That shift has improved margins, increased returns on capital, and made the business meaningfully more resilient across the housing cycle. Housing affordability is unlikely to improve materially in the near term absent a significant decline in mortgage rates, which we do not expect. That said, we believe the underlying fundamentals continue to improve.

As new housing supply remains constrained, rental rates should continue to rise, making homeownership relatively more attractive. At the same time, as higher mortgage rates become more normalized and wages continue to increase, both actual affordability and consumers' willingness to finance homes at today's rates should gradually improve. Our long-term investment thesis remains unchanged.

The United States continues to face a structural housing shortage, and higher mortgage rates have further constrained the supply of existing homes by locking homeowners into low-rate mortgages. As a result, even if overall housing activity remains subdued, we believe new homebuilders are likely to continue gaining market share, an important benefit for BLDR given its significant exposure to new residential construction. We have reduced our near-term cash flow estimates to reflect a slower housing recovery.

Even so, we continue to estimate normalized free cash flow of approximately $9–12 per share, implying a normalized free-cash-flow yield of roughly 10–13% before assigning any value to future growth. Combined with favorable long-term industry dynamics and BLDR's increasingly advantaged competitive position, we continue to believe the shares offer an attractive risk-reward. Core Natural Resources (CNR) CNR declined approximately 23% during the second quarter and is down roughly 9% year-to-date, including dividends.

Core is one of the world's leading producers of both metallurgical coal, used in steelmaking, and thermal coal, used in power generation. Thermal coal stands to benefit from growing global electricity demand following more than a decade of limited growth. While headlines often focus on renewable energy, we believe virtually every