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US private credit defaults hit record 9.2% in 2025, Fitch says

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Re: US private credit defaults hit record 9.2% in 2025, Fitch says

#161

Post by cs702 »

RobRivera wrote: post #132
cs702 wrote: post #116

Trouble has been brewing in private credit for quite a while, but lenders and investors have been reluctant to write anything down, resorting to all kinds of "extend and pretend" games to avoid write-downs.[a] tick-tock, tick-tock, tick-tock... --- [a] https://news.ycombinator.com/item?id=47351462

What kind of trouble is brewing from the migration of partner capital committment to credit based on NAV? What is the risk, probability of actualizing the risk, and the outcome of actualized risk? The ticktock ticktock routine reads like baseless fearmongering to me.

My understanding is that many private credit funds have been very lax about conducting basic due diligence on the creditworthiness of borrowers.

For example, take First Brands, a multi-billion-dollar company which filed for bankruptcy last year. First Brands had pledged the same assets as collateral for loans from multiple private-credit funds. Those loans were being carried at a fantasy NAV of 100 cents per dollar, until suddenly they were not. Did none of these lenders submit UCC filings so other lenders could check which assets had already been pledged as collateral? Did none of these lenders ever check to see which assets had already been pledged? Did all these lenders make loans based on blind trust?

Failing to check and verify that assets have not been pledged as collateral to other lenders is an amateur mistake. It's reckless, really. The equivalent in home-mortgage lending would for a mortgage lender never even bothering to check that a homeowner isn't getting multiple first-lien mortgages simultaneously on the same home, then forgetting to put the first lien on the property title.

My take is that for many private credit funds, NAVs are basically fantasy.

Re: US private credit defaults hit record 9.2% in 2025, Fitch says

#164

Post by lokar »

aewens wrote: post #145
happytoexplain wrote: post #124

Earlier quoted context omitted.

I don't know a lot about finance. What is the definition/significance of "firm" in this context (if that's not a complicated question)?

Not who you asked, but I think making the nuance between retail and corporate credit. With firms being corporate credit (i.e. we aren’t talking about individuals / retail).

No.

There are kind of 3 types of loans:

- bonds. Loans interned to be bought by a range if investors and traded over time. Arranged and unwritten by investment banks.

- bank loans. The classic loan. The bank takes depositor money (that the depositor can take back anytime!) and loans it to someone or some company. The bank holds the loan

- private credit. Like a bank loan, but they get their money from long term investments by wealth people and institutions, add bank loans for leverage, and then hold the loan.

Re: US private credit defaults hit record 9.2% in 2025, Fitch says

#165

Post by adabyron »

Highly recommend listening to past episodes on The Real Eisman Playbook podcast for more info on this topic & banking in general.

https://podcasts.apple.com/bz/podcast/the-real-eisman-playbo...

He's one of the "Big Short" guys but more importantly he has great guests on. Everyone is trying to teach & inform, not sell.

He's been calling this risk out for over a year, especially once the White House started trying to allow retirement accounts access to private credit. For a lot of people that was the big alert, even before Jamie Dimon said he saw "cockroaches".

Re: US private credit defaults hit record 9.2% in 2025, Fitch says

#166

Post by JumpCrisscross »

hnfong wrote: post #156
JumpCrisscross wrote: post #78

Earlier quoted context omitted.

> if factories are still producing things like they were 20 years ago, the CPI would have been much higher, and that higher number is closer to what should have been the inflation number This is an impossible counterfactual to test. In reality, tracking value across time requires adjusting for immeasurable preferences. This is why inflation is really only a useful measure for personal purposes across periods of years…

I think it's so obvious that no testing is needed, but generally I don't disagree with your take. The thing is one really needs to understand what "real yields" mean when investing in bonds, i.e. it means your purchasing power with respect to cheap commodities tracked by the CPI is preserved, but it doesn't necessarily mean "value" (whatever that means in the abstract) is retained.

> it means your purchasing power with respect to cheap commodities tracked by the CPI is preserved

CPI isn't a measure of commodities. And "CPI" is a bit of shorthand, given there are pretty much as many measures of consumer and producer prices as there are economists.

> it doesn't necessarily mean "value" (whatever that means in the abstract) is retained

This is what any measure of inflation ultimately seeks to measure. Purchasing power is intrinsically tied to the basket of goods and services its measuring. That basket varies across people and time as preferences vary.

Re: US private credit defaults hit record 9.2% in 2025, Fitch says

#167

Post by boringg »

kelp6063 wrote: post #122

Unless I'm misunderstanding something, this isn't that big of a number in the larger scale of US banking; According to the numbers in the article that's only about 2.5% of all bank lending (300B/1.2T, with the 1.2T being ~10%)

Update: original comment should be. 300B/1.2T*(10% of bank funds) = 2.5%. If I'm reading comment correct. Also I believe the whole private credit ecosystem is about 1T.

In a catastrophic scenario: if the whole asset class went to 0 (on the banks asset sheet they would lose 2.5% - absorbable pain assuming its not leveraged through creative financial mechanisms).

I would wager that risk is more concentrated on certain institutions instead of across the board so acute pain likely.

Re: US private credit defaults hit record 9.2% in 2025, Fitch says

#168

Post by frogperson »

NickC25 wrote: post #130
plagiarist wrote: post #121

Government removes regulations, economy collapses, government bails out the wealthy, quants get ski trips and bonuses while families starve.

And to make matters worse, those who remove regulations then get voted out, but show up on infotainment "opinion" shows disguised as news broadcasts....and whine that those who were voted in to fix the mess aren't fixing the problem fast enough , so those who caused the problem should be voted back in. And lo and behold, they get voted back in, to cause more damage.

Its un-fixable. The situation cant be explained simply enough for the majority of americans. Even if some of them do mange to understand, it will be quickly forgotten amid the flood of trump sewage we are sprayed with every day.

Re: US private credit defaults hit record 9.2% in 2025, Fitch says

#169

Post by kelp6063 »

JumpCrisscross wrote: post #142
kelp6063 wrote: post #122

Unless I'm misunderstanding something, this isn't that big of a number in the larger scale of US banking; According to the numbers in the article that's only about 2.5% of all bank lending (300B/1.2T, with the 1.2T being ~10%)

> this isn't that big of a number in the larger scale of US banking It's not. It's just that we're seeing potentially 10% losses on the portfolio level [1], which could imply up to–up to!–5% losses to the banks' loans to those lenders. Again, tens of billions of dollars of losses are totally absorbable. But Morgan Stanley's stock price took a hit when it gated one of these funds [2]. And some banks (Deutsche Bank, so…

good explanation, thanks

Re: US private credit defaults hit record 9.2% in 2025, Fitch says

#170

Post by JumpCrisscross »

adabyron wrote: post #165

Highly recommend listening to past episodes on The Real Eisman Playbook podcast for more info on this topic & banking in general. https://podcasts.apple.com/bz/podcast/the-real-eisman-playbo... He's one of the "Big Short" guys but more importantly he has great guests on. Everyone is trying to teach & inform, not sell. He's been calling this risk out for over a year, especially once the White House started trying to a…

> He's been calling this risk out for over a year

Any figures or lenders he's focussed on?

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