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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

#221

Post by JumpCrisscross »

NoboruWataya wrote: post #215
JumpCrisscross wrote: post #214

Earlier quoted context omitted.

> the banks' lending to the private credit firms is subject to the same regulations and constraints as their lending to other borrowers Yes. > the same regulations and constraints that led them not to lend to the underlying borrowers in the first place No. Non-bank financial institutions (NBFIs a/k/a shadow banks) compete with banks. They also borrow from banks. > When banks lend to private credit funds/firms, it ten…

> No. Non-bank financial institutions (NBFIs a/k/a shadow banks) compete with banks. They also borrow from banks. How is this inconsistent with what I said? I was just making the point that the reason for the rise of private credit is that banks are less willing / able to lend, particularly to riskier borrowers, as a result of post-2008 banking regulations. So private lenders have stepped in to fill that gap.

> the reason for the rise of private credit is that banks are less willing / able to lend, particularly to riskier borrowers, as a result of post-2008 banking regulations. So private lenders have stepped in to fill that gap

That may have been true once. It's rarely true now. Banks and shadow banks compete for the same borrowers.

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

#222

Post by lizknope »

ploden wrote: post #163

> the top five lenders in the private credit market include Wells Fargo, which leads the way with $59.7bn (£44.8bn) in lending anything Wells Fargo leads in must be bad

Wells Fargo so big its suing itself

July 10, 2009

https://www.denverpost.com/2009/07/10/lewis-wells-fargo-so-b...

My normal bank was acquired by Wells Fargo in 2008 and they also owned my mortgage.

When I went to pay off my mortgage in 2012 they required a cashier's check for the final payment of around $80.

I asked if we could do it electronically like all of the previous payments and they said no.

So I walked into my local bank asking for a cashier's check of that amount and the bank teller told me that most people would accept a personal check for that little. I said yeah but YOU don't. She looked at me funny.

So she asked who to make the cashier's check out to. I said "Wells Fargo" and she looked at me funny again and said "Wells Fargo is us, the check comes FROM Wells Fargo. Who do I put on the TO line" and I said "Wells Fargo"

She again looked at me funny and I explained that I am paying off my mortgage. Wells Fargo is where I have my bank account and my mortgage. She said "Can't we just do it electronically?" to which I said "You would think but apparently your employer can't handle that and told me to get a cashier's check and FedEx overnight to them."

She rolled her eyes and then started laughing.

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

#223

Post by boringg »

metrix wrote: post #217
boringg wrote: post #187

Earlier quoted context omitted.

There are limited ways to short these positions which would probably add some fuel to the fire.

I don't see it as adding fuel to the fire. I see it as helping the market price companies correctly

Its a balancing act.

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

#224

Post by lokar »

JumpCrisscross wrote: post #219
lokar wrote: post #212

Earlier quoted context omitted.

I mean the classic “it’s a wonderful life” model

Convergent evolution in finance is actually a pet interest of mine. It seems like it's mostly driven by regulation. But the more you stare, the more the regulation appears like a canyon wall and the hydrology customs and connections. I'm not sure what the underlying geology is, however. Something bigger than customs or laws, but not so grand that it becomes ethereal.

The pattern I see is:

The Banks get in trouble, and Gov has to step in. So Gov, reasonably, add regulations and restrictions. But the law can't be really specific, it requires gov employees to actually examine the bank and make decisions (eg about risk levels, etc).

The banks have a really large incentive to chip away at the effectiveness of the regulation. They hire lots of lawyers, consultants, notable economists, etc and just keep pushing on these rank and file gov regulators. They buy influence with politicians, and use that to pressure the regulators. They hire some of the regulators at very high pay, sending a signal to the others: play ball and a nice job awaits you.

Over time, they just wear down the regulators. The rules are interpreted to be mostly ineffective and nonsensical. Often at that point the politicians come in and just de-regulate.

The banks just have the incentive and focus to keep at it every day for years. No one else with power is paying attention.

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

#225

Post by vondur »

JumpCrisscross wrote: post #201
jmalicki wrote: post #199

Earlier quoted context omitted.

What does this typically look like? Who is the intermediary here between the bank and corporate borrowers - are these buy side created SPVs?

> Who is the intermediary Business development companies [0]. Blue Owl. BlackRock [1]. > are these buy side created SPVs? Great question! Not always [2]. [0] https://www.reuters.com/business/finance/private-credit-fund... [1] https://www.blackrock.com/corporate/newsroom/press-releases/... [2] https://www.datacenterdynamics.com/en/news/meta-secures-30bn...

Am I wrong thinking this is similar to the housing loan crisis of 2008? This is just another form of that "shadow banking" system isn't it?

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

#226

Post by dkga »

For those that want a broader context on private credit, the Bank for International Settlements has been publishing some great material on the topic, including the connections between private credit and other corners of the financial system. Some examples follow.

---

[0] https://www.bis.org/publ/qtrpdf/r_qt2503b.htm [1] https://www.bis.org/publ/bisbull106.pdf [2] https://www.bis.org/publ/work1267.pdf

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

#227

Post by hedora »

JumpCrisscross wrote: post #214
NoboruWataya wrote: post #203

The concern here seems to be that the credit risk on the underlying borrowers is being transferred to banks through the loans made by the banks to the private credit firms. But the banks' lending to the private credit firms is subject to the same regulations and constraints as their lending to other borrowers (the same regulations and constraints that led them not to lend to the underlying borrowers in the first plac…

> the banks' lending to the private credit firms is subject to the same regulations and constraints as their lending to other borrowers Yes. > the same regulations and constraints that led them not to lend to the underlying borrowers in the first place No. Non-bank financial institutions (NBFIs a/k/a shadow banks) compete with banks. They also borrow from banks. > When banks lend to private credit funds/firms, it ten…

> secured loans which will be less risky than the underlying loans

So, it's sort of like bundled mortgage securities, where you take some bad loans and mix them together to get a "less risky" loan, since the chance of them all defaulting at once is less than the chance of all but one defaulting.

Presumably, since banks (by definition, an intermediary) are involved, those are then recursively repackaged until they have an A+ rating, or some such nonsense, right? Also, I'm guessing there's no rule that says you can't intermingle these things across separate "independent" securities, even if the two securities end up containing fractions of the same underlying bad loans?

Clearly, like with housing, there's no chance of correlated defaults in a bucket of bad business loans that's structured this way!

In case you didn't quite catch the sarcasm, replace "housing loans" with "unregulated securities" and note that my description switches from describing the 2008 financial crisis to describing the Great Depression, or replace it with "bucket shops" (which would sell you buckets of intermingled stocks) and it would describe every US financial crisis of the 1800s.

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

#228

Post by chii »

strangattractor wrote: post #220
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

You can always tell when there is a problem. When things are fine the companies keep the profits to themselves. When things start to get dicey - foist it off onto retail investers. Private equity (PE) is increasingly being introduced into 401(k) plans, driven by a 2025 executive order encouraging "democratization" of alternative assets. - Google AI

It's why as a retail investor, never buy things that would otherwise have not been available to you (but was to those "elite"/institutional investors previously).

Think pre-IPO buy-in. Investors in the know and other well connected institutional investors get first dibs on all of the good ones. The bad ones are pawned off to retail investors. It's no different with private credit and private equity. These sorts of deals have good ones and bad ones - the good ones will have been taken by the time it flows down to retail.

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

#229

Post by nstj »

For the OP: what’s your view on the overall private credit situation? Who are the bag holders and how bad is the contents of the bag?

You seem to be answering a number of other questions in the post so interested to hear your impetus for sharing in the first place.

nb: thank you for being an ongoing contributor to the site! I see your handle cropping up a lot in substantive conversations

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

#230

Post by bombcar »

cs702 wrote: post #161
RobRivera wrote: post #132

Earlier quoted context omitted.

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,…

Once you get outside of things that are highly standardized (like home loans to individuals) you quickly find out that no matter how regulated, finance is done on a handshake.
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