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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

#341

Post by thelastgallon »

ToucanLoucan wrote: post #23
jacquesm wrote: post #16

Earlier quoted context omitted.

This time it took ~35 blows with a sledgehammer. You have to be impressed with the degree of resilience here, even a chaos monkey like Trump has a hard time completely destroying the US economy even when all checks & balances utterly fail.

Trump is a symptom, not a cause. One of probably hundreds of mediocre failsons gifted unbelievable wealth in the birth lottery who’s greatest achievement in life was managing to not lose all of it to his awful business acumen and utter refusal to listen to a single living person. Every industry’s leadership is full of trumps, many more palatable personally, many far better spoken, many even with better politics but n…

Spot on! I worked with execs at a FAANG, they don't have the foggiest idea what they are doing! Extraordinarily dumb, and they get all their 'information' and take decisions from gatekeeping orgs which are super incompetent. This is the one org where incompetency is a super weapon. These orgs don't take competent people, because they won't be loyal to you and do your bidding. And worse, if the execs realize there is a competent person, they will come straight you, bypassing the gatekeeping hierarchy.

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

#342

Post by csa »

JumpCrisscross wrote: post #293
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…

> 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 This mostly correctly describes a leveraged buyout (LBO). LBOs are done by LBO shops, a type of private equity (PE) firm. Not VCs. (VCS do venture capital, a different type of PE.) And LBO debt isn’t “pushed” onto the company’s books, it’s never on the sponsor’s (LBO shop’s) books in…

> And LBO debt isn’t “pushed” onto the company’s books, it’s never on the sponsor’s (LBO shop’s) books in the first place to any material extent.

Could you please explain the how and why of the mechanics of this process (edit: from the perspective of the lender)?

It seems like the lender is taking a massive sucker bet.

Or is the reality that the lender gets repaid the vast majority of the time, and we only hear about the bad outcomes?

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

#343

Post by skeeter2020 »

JumpCrisscross wrote: post #300
mbrumlow wrote: post #295

Earlier quoted context omitted.

Nope. The clinic is the collateral to the bank. VC stand to loose nothing. It does not happen overnight. But what happens is after they take control of the clinic or company they change the sales model to boost reoccurring revenue, this then allows the clinic or target company to take loans out. Because they look good on paper. The company then pays VC back when then pays bank back. This can be done in about 6mo to 1…

> The clinic is the collateral to the bank. VC stand to loose nothing This is actually a case where using the correct terminology clarifies. VCs don’t do LBOs. Private equity firms do. When their deals go bust they lose the equity they invested. That equity is the first layer to take a loss. When that happens, the lenders—whether they be banks or private credit firms—take over the company, often converting some of th…

PE includes buy-out (leveraged and not) and VC transactions. PE is typically any medium to long term equity investment not traded publicly on an exchange. Even this is cloudy now that the PE firms themselves are going public.

LBOs are also not a black and white classification, at least not the way they were in the Gordon Gecko 80's, with varying levels of target-borne debt financing specific to the deal. So while I agree "VCs don't do LBOs", PE does both LBOs and VC deals, with the PE firms doing their own style of fund and deals.

I found this book (though dated) to be a more academic analysis of PE: https://www.wiley.com/en-us/Private+Equity%3A+History%2C+Gov...

don't buy it; try your local library.

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

#344

Post by WalterBright »

Buttons840 wrote: post #324
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…

The free market solution to this seems to be making it easy / easier for competitors to arise. Then, when private equity does this, the customers, and workers, just hop ship to a competitor that's better managed and the original clinic goes under. I don't expect this happens in reality though. In general the things that happen in a healthy free market are NOT happening in our society.

A business owner lamented to me recently that it wasn't the taxes that were crushing his business, but the costly regulations that keep on coming.

The harder the government makes it to operate a business, the less businesses there will be.

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

#345

Post by skeeter2020 »

fireflash38 wrote: post #306
mbrumlow wrote: post #295

Earlier quoted context omitted.

Nope. The clinic is the collateral to the bank. VC stand to loose nothing. It does not happen overnight. But what happens is after they take control of the clinic or company they change the sales model to boost reoccurring revenue, this then allows the clinic or target company to take loans out. Because they look good on paper. The company then pays VC back when then pays bank back. This can be done in about 6mo to 1…

Who are the bagholders in these scenarios?

The PE sales pitch is often that the target company can benefit from expertise management and/or there is value locked in it that can be captured. Both of these claims are... marginal? Studies around the "expert management" claim tend to show this is not true, based on pre/post returns, but it's hard to account for the long term, because PE also tends to focus on sales with very specific characteristics & time horizons (and associated cost savings) that benefit a 5-7 year fund that sells the portfolio company (wait for it) around years 3-5.

Which is a long-winded way of saying the bag holders are anyone invested in the long-term success of the company: 1. employees, 2. customers, 3. owners (i.e. the next PE fund) when the music stops, i.e. what we saw when interest rates went up impacting debt financing, and (real or not) AI-eats-SaaS impacted valuations. I'll add 4. "the public" if the company is big enough, with various levels of goverment and employment, taxes, etc. lost but I think it's more the smaller organizations in aggregate that hurt at this level than any specific company.

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

#346

Post by [deleted] »

csa wrote: post #342
JumpCrisscross wrote: post #293

Earlier quoted context omitted.

> 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 This mostly correctly describes a leveraged buyout (LBO). LBOs are done by LBO shops, a type of private equity (PE) firm. Not VCs. (VCS do venture capital, a different type of PE.) And LBO debt isn’t “pushed” onto the company’s books, it’s never on the sponsor’s (LBO shop’s) books in…

> And LBO debt isn’t “pushed” onto the company’s books, it’s never on the sponsor’s (LBO shop’s) books in the first place to any material extent. Could you please explain the how and why of the mechanics of this process (edit: from the perspective of the lender)? It seems like the lender is taking a massive sucker bet. Or is the reality that the lender gets repaid the vast majority of the time, and we only hear about…

[deleted]

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

#347

Post by skeeter2020 »

infecto wrote: post #328
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…

This is just wrong. VC is not PE. The Vet example is really a bad trope. For every bad deal there are many others you never hear about. PE firms are not making money by simply buying everything up. The business still has to maintain and grow.

VC is most definitely a form of Private Equity, though it's not the limited-partnership deal model that we often see in SaaS, or Vet Clinics, or Housing, etc. Yes, they need to grow but PE firms don't invest directly. They have funds with relatively short time horizons that want 2 things: 1. cashflow during the fund lifetime and 2. equity growth so they can sell the assets in the fund prior to the end. PE firms will sometime flip portfolio companies to their next fund but this is frowned upon because the investors are sophisticated and recognize the valuation conflict of interest. The PE business depends on repeat business for selling their funds; the best are always over subscribed and never go shopping for investors, while the rest are marginal forever.

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

#348

Post by Tuna-Fish »

csa wrote: post #342
JumpCrisscross wrote: post #293

Earlier quoted context omitted.

> 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 This mostly correctly describes a leveraged buyout (LBO). LBOs are done by LBO shops, a type of private equity (PE) firm. Not VCs. (VCS do venture capital, a different type of PE.) And LBO debt isn’t “pushed” onto the company’s books, it’s never on the sponsor’s (LBO shop’s) books in…

> And LBO debt isn’t “pushed” onto the company’s books, it’s never on the sponsor’s (LBO shop’s) books in the first place to any material extent. Could you please explain the how and why of the mechanics of this process (edit: from the perspective of the lender)? It seems like the lender is taking a massive sucker bet. Or is the reality that the lender gets repaid the vast majority of the time, and we only hear about…

The lender generally has a positive EV, but variability is high. The interest rates on leveraged buyouts are high, and the lender has priority over everything but taxes. If the company can stay afloat for a while, the lender probably got made whole and then some, even if the full loan never got paid back.

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

#349

Post by Buttons840 »

yoyohello13 wrote: post #327
Buttons840 wrote: post #324

Earlier quoted context omitted.

The free market solution to this seems to be making it easy / easier for competitors to arise. Then, when private equity does this, the customers, and workers, just hop ship to a competitor that's better managed and the original clinic goes under. I don't expect this happens in reality though. In general the things that happen in a healthy free market are NOT happening in our society.

This completely discounts the work involved to find service providers you trust. I spent a long time finding a Doctor I trust, finding a Vet I trust, etc. I don't want a "free market" solution where I need to switch providers every 6 months because some rich dude is being a dick. This is the problem with so many market focused solutions. They discount the burden put on the consumer.

You're complaining about healthcare being tied to employment. That sucks. Yeah, we should get rid of that.

Coupling healthcare and employment makes it harder for agents to move and trade "freely" in the "free market".

So, I say again. The things that happen in a healthy free market are not happening in our society.

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

#350

Post by infecto »

skeeter2020 wrote: post #347
infecto wrote: post #328

Earlier quoted context omitted.

This is just wrong. VC is not PE. The Vet example is really a bad trope. For every bad deal there are many others you never hear about. PE firms are not making money by simply buying everything up. The business still has to maintain and grow.

VC is most definitely a form of Private Equity, though it's not the limited-partnership deal model that we often see in SaaS, or Vet Clinics, or Housing, etc. Yes, they need to grow but PE firms don't invest directly. They have funds with relatively short time horizons that want 2 things: 1. cashflow during the fund lifetime and 2. equity growth so they can sell the assets in the fund prior to the end. PE firms will…

Did not read all of it. Yes, it is a form of private equity. Of course. You missed the context. The post kept saying VC is buying a vet shop. In that context they meant private equity. VC is not the same as what they meant to say, PE.
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