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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

#251

Post by irishcoffee »

AnimalMuppet wrote: post #211
irishcoffee wrote: post #188

Earlier quoted context omitted.

I appreciate your posts generally, you have a lot of good insights. Do you think replacing that 4T was a good call? I'm struggling to see how it was the right play.

I think it was a good call, yes. A deflationary collapse is incredibly damaging to the economy. The Great Depression was such a collapse, but there are others. The Panic of 1857, 1873, 1907... there's a long history of these. The Fed avoided that. And they also avoided causing inflation. It was an amazing job of threading the needle. (One could argue that they caused a decade of stagnation, but in my view that was mi…

Thank you for the thoughts. Do you think if we had ripped the band-aid off then it would have been completely disastrous? I don't mind saying that this economy is frustrating, and it feels like we keep kicking the can down the road. I'm confident I'm not the only person that feels this way, and I'm quite open to being wrong here. My guts says there's just too much money sloshing around, and it gets vacuumed up, leaving the majority feeling like nothing changed.

I'm asking this in as non-confrontational way as possible, what am I missing?

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

#252

Post by karambahh »

boringg wrote: post #167
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…

I've been told by the head of compliance of the largest European banking group that 2.5% is exactly the threshold at which they begin to be very worried/ at systemic risk

Apparently they operate on very low level of tolerable risk (way lower than I thought)

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

#255

Post by AnishLaddha »

karambahh wrote: post #252
boringg wrote: post #167

Earlier quoted context omitted.

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…

I've been told by the head of compliance of the largest European banking group that 2.5% is exactly the threshold at which they begin to be very worried/ at systemic risk Apparently they operate on very low level of tolerable risk (way lower than I thought)

>2.5% is likely still survivable, but i think risk departments + regulators are all a lot less risk tolerant after seeing how quickly things went south in 2008 and worries about an out of control spiral

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

#256

Post by bryanrasmussen »

miketery wrote: post #238
bryanrasmussen wrote: post #234

Earlier quoted context omitted.

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 business owes the money or the fund. In any case the individuals do not unless they backed it with personal collateral.

hmm, yeah ok so the collateral is the business they are buying, I forgot that one.

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

#257

Post by Aboutplants »

JumpCrisscross wrote: post #134
RobRivera wrote: post #98

Earlier quoted context omitted.

Deutsche gonna Deutsche. Recruitment tables should just have a banner that reads 'we've already spent your bonus on legal fees, here's some chocolate'

I'm re-running some of the Fed's stress tests and, somehow, still find myself flabbergasted that DB is at the top of my risk list. Despite only having $12bn of exposure, if they see a 60% loss on that risk alone (assuming 60% recovery and 1.5x leverage), they breach their 4.5% capital requirement. That's the lowest threshold I'm finding across all of the banks the Fed stress tests. Now 50% loss means wipe out. But gi…

Time to short them?

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

#258

Post by pembrook »

o-o- wrote: post #247
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 yo…

So yes, PE funds are probably overvalued right now and there are a lot of PE funds getting rich off management fees while not providing promised returns...but this comment is so wrong I don't know where to begin.

First, VC stands for venture capital, which is a subset of private equity that does zero LBOs and doesn't even acquire any businesses. VC funds buy equity in startups, and take on zero debt to do so. You have your boogiemen totally confused.

Second, the entire point of a PE fund that uses a leveraged buyout strategy is that they need to sell the acquired firm at a profit to make any returns to the fund. LBO funds don't 'cashflow' businesses, and saddling a business with a bunch of debt is antithetical to that purpose anyways.

Third, this is not "risk free revenue." It's a high risk strategy to use the debt to increase the value of the business by improving operations enough that you can sell it for a profit to the fund. If you saddle a company with debt and DON'T increase the value of the business beyond the debt you took on, the PE fund will not be in business for fund 2.

The risk-free revenue while the fund is alive comes from the management fees that investors in the fund pay (usually 2%, which is way too high IMO, but has nothing to do with the debt or the acquired businesses).

Please do not write confident sounding comments about things you don't understand, it spread misinformation and makes the internet a worse place.

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

#259

Post by RobRivera »

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,…

If lenders are in fact not performing due diligence and passing off good credit as bad...sounds suspiciously like a 2008-like era where noone cared about the credit worthiness but just wanted to generate lines of credit.

Oh boy, if this is the case, oh boy.

Lessons not learned indeed.

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

#260

Post by elevation »

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…

Private equity is a huge inflation driver. I'm thrifty, and for years I enjoyed a $10/mo phone provider, ~$12.39 with taxes. I even evangelized this carrier with some young parents who were struggling to get financial traction while paying off student loans.

Our affordable plan came to an end when the rates tripled! Turns out a private equity firm bought the company, jacked the rates on every customer, and sold it off again. This was not a fundamental cost being passed on in slightly increased fees -- it was private equity extracting millions from the people who can afford it the least. Across my financially optimized life, I see this happening repeatedly.

Personally, I can afford a more expensive cell phone bill. But I would imagine that many who have a $10/mo plan do not have many other options. I would like to punish the banks who are funding attacks on consumers. If by no other means, then by letting them fail.

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