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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

#241

Post by rd »

chii wrote: post #228
strangattractor wrote: post #220

Earlier quoted context omitted.

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 de…

This can't be a to-die-on rule though. Retail would've never bought GOOG, or TSLA, or AAPL if that were the case. Maybe I'm just being pedantic.

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

#242

Post by badpun »

CharlieDigital wrote: post #216
fragmede wrote: post #208

Earlier quoted context omitted.

Do we still have three separate branches?

We sure did when Frank-Dodd was written by the legislative and then signed into law by the executive. GP's comment is about the aftermath of 2008, entirely missing the fact that the legislative did in fact create laws which were signed by the executive and then later, in 2018, dismantled under a different administration. It's a matter of simple facts here.

Frank-Dodd wasn't nearly as strict as the post-1929 regulation (Glass-Steagall act) that actually prevented such crisies for half a century.

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

#243

Post by mandevil »

npilk wrote: post #100
kentonv wrote: post #86

Earlier quoted context omitted.

TBH "private credit" (meaning exactly what this article is talking about) is such a big thing in the finance industry that probably most finance industry people can't even fathom that the title is misleading to non-finance-industry people. I'm not saying they are right. But it's like if you posted an article called "Python Is Eating the World" on a non-tech side and people got mad because they thought the article was…

It's some sort of Gell-Mann-Amnesia-like effect. I am accustomed to seeing thoughtful, informed discussion about technical topics on HN, so then it's jarring when something like this hits the front page and nobody seems to have any idea what they're talking about.

It's opposite Gell-Mann-Amnesia: I am a SWE and I come here because I find it one of the best places to keep abreast of the broader software world, not just the little corner of it that I'm currently working in. So in the things that I know well, I trust it. My wife is a medical professional, and so I know just enough to see that most medical conversations here are complete and utter nonsense.

So the mental model I have of the average HN contributor is basically that they are all SWE's- they know software engineering extremely well, and the farther you get from that the less valuable the conversation will be, and the more likely it will be someone trying to reason from first principles for 30 seconds about something that intelligent hard working people devote their careers to.

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

#244

Post by cs702 »

bombcar wrote: post #230
cs702 wrote: post #161

Earlier quoted context omitted.

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.

That's true, but only to a point. Due diligence is not uncommon, especially with more traditional forms of credit.

I resorted to the mortgage-lending analogy so others could quickly grok what multi-pledging means.

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

#245

Post by rlucas »

hedora wrote: post #227
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…

> 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 hav…

I don't think that's a true etymology of "bucket shop," which per my recollection of Livermore was just an off-track-betting parlor for ticker symbols, but where nobody actually bought the shares (bundled or otherwise). Strictly a retail swindle, having nothing directly to do with the risk/maturity bundling work you are criticizing above.

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

#246

Post by spamizbad »

fairity wrote: post #193

So, if I’m following: Banks are lending to private equity firms to fund purchases of businesses. Many of these businesses are SaaS which means their valuations are tumbling. It seems possible that valuations tumble so much that the private equity owner no longer has any incentive to operate the business, bc all future cash flows will belong to the bank. What happens in practice then? Will banks actually step in and t…

Banks have zero appetite for taking any operating responsibility for these firms and will work tirelessly to get them off their books ASAP.

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

#247

Post by o-o- »

fairity wrote: post #193

So, if I’m following: Banks are lending to private equity firms to fund purchases of businesses. Many of these businesses are SaaS which means their valuations are tumbling. It seems possible that valuations tumble so much that the private equity owner no longer has any incentive to operate the business, bc all future cash flows will belong to the bank. What happens in practice then? Will banks actually step in and t…

> Banks are lending to private equity firms to fund purchases of businesses.

Yes some businesses are SaaS but here's the real problem: Many businesses' sole purpose is _leveraged buy-outs_ which really is the devil in disguise.

It goes like this: A VC specialising in veterinary clinics finds a nice, privately owned town clinic with regular customers and "fair" prices, approach the owners saying "we love the clinic you've built! We'll buy your clinic for $2,500,000! You've really earned your exit!".

So now the VC lends the money from the bank, buys the clinic, and here's the important part: _they push the debt onto the clinic's books_. So all of a sudden the nice town clinic has $2,500,000 in debt, raise prices accordingly, ~~burn out personnel~~ slim operations accordingly, and any surplus that doesn't go to interest and amortization goes straight to the VC.

Debt and collateral on the veterinary clinics.

Risk free revenue to the VC.

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

#248

Post by klodolph »

bryanrasmussen wrote: post #234
fairity wrote: post #193

So, if I’m following: Banks are lending to private equity firms to fund purchases of businesses. Many of these businesses are SaaS which means their valuations are tumbling. It seems possible that valuations tumble so much that the private equity owner no longer has any incentive to operate the business, bc all future cash flows will belong to the bank. What happens in practice then? Will banks actually step in and t…

Wouldn't they still owe interest to the banks on the money they borrowed, as well as the money they borrowed? I mean if all the money I make goes to the bank to pay off my mortgage my solution is not quitting my job, even though life is not very good under that situation.

The analogy has a lot of problems.

Imagine you got a loan to buy a bunch of laundry machines to run a laundromat. But your laundromat earns $8,000 a month, and the loan payment is $10,000.

You can decide to sink $2,000 of your personal money into the laundromat every month, or you can give up.

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

#249

Post by keernan »

sehansen wrote: post #128
lenerdenator wrote: post #27

Earlier quoted context omitted.

We didn't recover from the 2008 crash properly because we didn't introduce consequences for those who created it.

Hundreds of financial institutions with greater or lesser responsibility for the crash in 2008 went under in those years[0]. The shareholders in almost all of these companies lost all of their money and the responsible employees lost their jobs. This includes some of the most guilty companies, like Washington Mutual, Countrywide Financial, IndyMac, Lehman Brothers, Merrill Lynch (through First Franklin Financial), Be…

>The shareholders in almost all of these companies lost all of their money

How is that penalizing those responsible?

Isn't it a pretty big leap to go from penalizing those selling packaged fraudulent loans to the public (whom, to my knowledge were never prosecuted) to the shareholders losing money as protection against it happening again?

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

#250

Post by lenerdenator »

sehansen wrote: post #128
lenerdenator wrote: post #27

Earlier quoted context omitted.

We didn't recover from the 2008 crash properly because we didn't introduce consequences for those who created it.

Hundreds of financial institutions with greater or lesser responsibility for the crash in 2008 went under in those years[0]. The shareholders in almost all of these companies lost all of their money and the responsible employees lost their jobs. This includes some of the most guilty companies, like Washington Mutual, Countrywide Financial, IndyMac, Lehman Brothers, Merrill Lynch (through First Franklin Financial), Be…

When you have people at the top of those institutions who made those decisions, and made enough money during their tenures to weather any length of unemployment and were sometimes even given a severance worth more money than the average American makes in a lifetime, going out of business or losing a job simply isn't enough.

It's one of the only investments of labor and time where the risk is not proportional to the return.

In order to create risk, you have to either claw back their money through civil action - which you can't because the entire point of incorporation is to separate the business entity from one's personal finances - or look at criminal charges. Otherwise, you have created a class of hyper-wealthy people who have no real incentive to perform in a way that is for the best interests of shareholders or society at large.

It's the reason we tie so much for regular people to employment in the US, like healthcare. Many argue that if you give the rank-and-file worker the kind of long-term financial security that just one or two years of being a C-suite executive at a major company, they won't work as hard. They won't make the best decisions. They won't be the dynamic workers our economy supposedly wants. That logic goes right out the window when a board goes hunting for a new CEO.

There's zero real risk involved.

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