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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

#261

Post by vmbm »

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,…

Do you know if First Brand's actions are considered fraud? Or was this entirely on the lenders to make sure they were in the clear regarding the collateral? Doesn't excuse the lack of diligence, but curious if there was some assumption of good faith that may have played a role in what diligence was or was not done.

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

#262

Post by superxpro12 »

pembrook wrote: post #258
o-o- wrote: post #247

Earlier quoted context omitted.

> 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 hav…

As someone who's life is currently being affected directly by PE middle-manning something I spend a LOT of time on, I am sensitive to this issue.

IF you have problems with the vocab and terms, fine. But I have seen personally this issue in my life, that is affecting my bank account.

And we have seen example after example of these LBO's ruining otherwise functioning businesses. It's happening. All over the place.

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

#263

Post by newsclues »

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…

The Mars family is doing that with the vets.

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

#264

Post by adam_arthur »

hedora wrote: post #231
adam_arthur wrote: post #210

Earlier quoted context omitted.

> Oooh, source? (I'm curious for when this was measured.) It depends when you measure, but you can Google around and find figures in the 60-80% range. 80% may have been a bit on the optimistic end of the range. But it's important to note that a "default" doesn't imply a 0. Of course this will depend on the covenants, underwriting standards, type of collateral. I would guess software equity collateral recovery rates a…

So, if I hold a bunch of Private Equity, and my holdings need a continuity of business loan, would I: (a) have the holding take out the debt, exposing 100% of my stake or, (b) have the holding divest a piece of itself, giving me control of the existing and new entities, then have that piece take out the debt, exposing 0% of my stake? I imagine any PE firm worth its salt would go with option (b). Presumably regulators…

It sounds like you're effectively describing some fraud scheme.

A smart lender will not issue loans without real collateral. If you create a subsidiary, that subsidiary has to have sufficient collateral and cashflow to secure a loan.

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

#265

Post by cs702 »

vmbm wrote: post #261
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,…

Do you know if First Brand's actions are considered fraud? Or was this entirely on the lenders to make sure they were in the clear regarding the collateral? Doesn't excuse the lack of diligence, but curious if there was some assumption of good faith that may have played a role in what diligence was or was not done.

Only a court can decide if the actions are fraud, but they sure look like it to me. Fraud doesn't excuse the lack of due diligence.

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

#266

Post by [deleted] »

JumpCrisscross wrote: post #194
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 Not quite. Private credit is to debt what private equity is to equity. (Technically, any non-bank originated debt that isn't publicly traded is private credit. Conventionally, it's restricted to corporate borrowers.) So bank exposure to private credit generally means banks lending to non-banks who then lend to corporate borrowers.

[deleted]

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

#267

Post by harmmonica »

vondur wrote: post #225
JumpCrisscross wrote: post #201

Earlier quoted context omitted.

> 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?

I don't think you're wrong if the following holds true: Before the housing bubble burst, banks lent funds to countless borrowers who couldn't, ultimately, afford their mortgage payments (because the banks didn't do their due diligence when underwriting the loans). This was widespread across pretty much every bank and mortgage banker. Not sure of the actual percentage of borrowers who, when all was said and done, had no business getting a mortgage for a house or condo, but suffice it to say it was well into the double digits percentage-wise (there's much more to this than simply banks and borrowers with Wall St. playing a major role in the collapse, but just keeping things simple).

In this private credit situation the analog for the banks are these private credit funds that have raised the capital they've lent from institutions and high-net-worth individuals (as opposed to banks, which have funds from consumer deposits). The analog to the individual mortgage borrowers from 2008 are actual companies.

To connect the dots, if the private credit funds were like the banks pre-2008, where due diligence was an afterthought, then this could turn out to be similar. So the real question is: are the borrowers (businesses in this case) swimming naked? Or do you believe the private credit funds when they say they actually conducted a good amount of due diligence when extending their loans? Once you know the percent of the companies that are naked you can evaluate whether this could/would end up similar to 2008. Nobody knows that yet, even, I suspect, the private credit funds themselves.

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

#268

Post by KellyCriterion »

gzread wrote: post #118

To private credit firms . Most of what banks do is private credit, the news is them funding private credit firms.

No, there is a huge difference:

- when a bank creates a loan, this has an effect on money supply in total

- when a private credit company "gives" a loan, it has no effect on total money supply and from balance sheet perspective its an accounting exchange on the asset side

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

#269

Post by pembrook »

superxpro12 wrote: post #262
pembrook wrote: post #258

Earlier quoted context omitted.

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 hav…

As someone who's life is currently being affected directly by PE middle-manning something I spend a LOT of time on, I am sensitive to this issue. IF you have problems with the vocab and terms, fine. But I have seen personally this issue in my life, that is affecting my bank account. And we have seen example after example of these LBO's ruining otherwise functioning businesses. It's happening. All over the place.

It is absolutely possible (and even likely!) that a bad PE fund was the cause of the issue you're talking about. But there is also a media hysteria around PE, and a lack of understanding among the general public of what it is.

It's just as likely the business that was acquired was already failing or unsustainable to begin with (hence why the owner wanted out at low multiples). LBO funds don't acquire promising businesses at 5-10X revenue like tech companies do, they usually buy businesses at low multiples that are past their prime or failing in an attempt to revitalize them (with debt, since you can't raise capital by selling equity in a failing business).

Obviously this will not always work out great, given the trajectory of target companies was already not great to begin with. Momentum is the strongest factor in all markets.

The problem is, Private Equity has become a conspiratorial catchall boogieman and scapegoat for every problem under the sun, so it's hard for me to assess without further details of the situation.

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

#270

Post by koolba »

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…

> Risk free revenue to the VC.

How is that risk free? If the clinic goes bankrupt the VC will be on the hook for the rest of the loan. It’s not free money.

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