US private credit defaults hit record 9.2% in 2025, Fitch says • Hacker News Board

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

#401

Post by iwontberude » Fri, Mar 13, 2026, 4:15 AM UTC

klodolph wrote: post #400

pocksuppet wrote: post #363

Earlier quoted context omitted.

It's never the time to short a company, even a really bad one. You have only 100% upside, infinite downside, and you have to time it perfectly. A short can be a part of a combination strategy where you go long on one company and short on a related one, but you still have to be really careful. If DB stock increases 50% before it crashes, would you be forced to sell at the top and lose all your money?

“Shorting” a company does not just mean short selling stock. Instead, it means having a short position, which you can use without unlimited downside. The easy way is to buy puts. Maybe your next question is, “who is selling puts?” And that’s a good question, but you don’t really care, because you can buy your puts on the open market and when you do that, you get protection from credit risk. There are other reasons wh…

And puts are highly manipulated by MMs so you have to really study the chain and how it behaves before you have a chance to buy the contracts at a fair price. MMs will flood the market with contracts and devalue yours even when the price is moving in your direction. I highly suggest people think twice about trading options, they are best used as hedges for large positions during particularly vulnerable periods.

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

#402

Post by klodolph » Fri, Mar 13, 2026, 4:19 AM UTC

georgeecollins wrote: post #397

pocksuppet wrote: post #363

Earlier quoted context omitted.

It's never the time to short a company, even a really bad one. You have only 100% upside, infinite downside, and you have to time it perfectly. A short can be a part of a combination strategy where you go long on one company and short on a related one, but you still have to be really careful. If DB stock increases 50% before it crashes, would you be forced to sell at the top and lose all your money?

This is sensible advice for most people. I see some thoughtful quibbles but I wish you weren't down voted. If you are a normal retail investor, please listen to pocksuppet.

pocksuppet’s advice is I think more of a reaction to a specific way that you could take a short position, and in 2026 I think you want to assume that people who know what “short” means, also know what options are.

The advice is good in a kind of stopped clock sense.

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

#403

Post by appleiigs » Fri, Mar 13, 2026, 4:21 AM UTC

codethief wrote: post #317

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. Doesn't the LBO shop still need to pay off the debt, technically speaking? AFAIU the company's assets (hospital in OP's example) are used as collateral in a credit agreement between the LBO shop (as the hospital's new shareholder) and the bank. But unless I'm mistaken, this…

LBO firm will create a new company called Acquisition Co. ("AcqCo") and put $500K of cash into it (equity). The Blue Owl will lend $2M to AcqCo (debt). AcqCo uses the $2.5M to buy the vet clinic. AcqCo will use cash flow from vet clinic to pay Blue Owl loan interest. If AI makes vet clinic lose revenue because customers treat Fluffy's ear infection at home, then Blue Owl and LBO firm are in trouble.

So the debt isn't "pushed" and it's not risk-free as the original comment said... also not Venture Capital. Lots wrong in that comment.

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

#404

Post by klodolph » Fri, Mar 13, 2026, 4:25 AM UTC

iwontberude wrote: post #401

klodolph wrote: post #400

Earlier quoted context omitted.

“Shorting” a company does not just mean short selling stock. Instead, it means having a short position, which you can use without unlimited downside. The easy way is to buy puts. Maybe your next question is, “who is selling puts?” And that’s a good question, but you don’t really care, because you can buy your puts on the open market and when you do that, you get protection from credit risk. There are other reasons wh…

And puts are highly manipulated by MMs so you have to really study the chain and how it behaves before you have a chance to buy the contracts at a fair price. MMs will flood the market with contracts and devalue yours even when the price is moving in your direction. I highly suggest people think twice about trading options, they are best used as hedges for large positions during particularly vulnerable periods.

I’m not convinced. If you think you know what the fair price is for a put, then you can bid that price. If you don’t think you know what the fair price is, then you shouldn’t be trading options.

There are reasons for not trading options, but the main reason is “you know less about price movement than you think you do”.

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

#405

Post by dboreham » Fri, Mar 13, 2026, 4:27 AM UTC

WalterBright wrote: post #344

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.

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.

Fewer businesses. But that aside when people say regulations are costly without providing specifics typically they are upset they can't rip off the public, pollute the environment or perform other acts to the disadvantage of the population.

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

#406

Post by bombcar » Fri, Mar 13, 2026, 4:49 AM UTC

WorkerBee28474 wrote: post #296

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 all of a sudden the nice town clinic has $2,500,000 in debt, raise prices accordingly... From a financial engineering perspective this is wrong. Both equity and debt have costs of capital. Debtholders expect interest, capital holders expect RoE. The money going to debt interest is money that would previously have gone to equity, but now does not because the equity is replaced with debt. Crucially, the costs of d…

Small businesses are notoriously bad about calculating RoE; bookstores that own a building that would rent for way more than they ever make in a month, etc.

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

#407

Post by chubs » Fri, Mar 13, 2026, 4:57 AM UTC

pseudosavant wrote: post #329

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 exactly what happened at a SaaS company I previously worked at. It was an awesome company with ~1500 employees, turning a small profit. Private Equity comes along, buys it with ~$2B in debt. Sticks the SaaS company with a $100M+ annual interest payment. Round after round after round of layoffs ensued. Then interest rates went up... and it got even worse. I think they are under 500 employees now. They basicall…

I don't understand: Who's lending the $2B in situations like this? Wouldn't they be worried that the above situation (company gutted, then going down the drain) is going to play out and they won't get their $2B back? Or is that the root problem with this whole YC submission: banks are being hit by defaults because of this exact problem?

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

#408

Post by donavanm » Fri, Mar 13, 2026, 5:08 AM UTC

JumpCrisscross wrote: post #315

gowld wrote: post #310

Earlier quoted context omitted.

Why does Blue Owl borrow from a bank to lend? Why would it need investors if it borrows from a bank?

> Why does Blue Owl borrow from a bank to lend? Why would it need investors if it borrows from a bank? Leverage. They raise money in their public funds. And then they borrow, typically around 50% of their capital, to amplify returns. Note: “Private credit lenders won’t lose money before private equity firms do. That’s how the capital stack of companies work: Equity is the first in line for losses. Before lenders like…

For the gp: the other side of the risk/reward coin is that private credit has limited upside. They're going to get the margin between the private 6/7/8/9/10% loan and their funding source + admin. Whereas PE can go “to the moon” if things work out.

morningstar had a nice writeup of the changing winds https://dbrs.morningstar.com/research/469893/2026-private-cr...

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

#409

Post by gymbeaux » Fri, Mar 13, 2026, 5:10 AM UTC

RobRivera wrote: post #259

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,…

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.

Remember, the lesson was that Daddy Government won’t let you fail. Barring any federal regulations, there’s no reason for financial entities to not repeat the exact “mistakes” that caused the 2008 (2007) Great Recession.

The lesson isn’t being ignored- it’s being used as justification.

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

#410

Post by pfannkuchen » Fri, Mar 13, 2026, 5:39 AM UTC

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%)

Yeah but don’t major problems usually take the form of debt chains being forcibly unwound? Like default happens somewhere, expected money doesn’t land, that next entity who was receiving the debt money that defaulted defaults on something because now they can’t pay, expected debt payment money from them doesn’t land, that next entity etc.

So I think it’s not about how much of the debt is this, it would be about how intertwined it is with other things.

I’m not claiming it’s major btw, I’m just clarifying that in my understanding it could be a small percent but still end up causing default cascades, or it could be a large percent and not, depending on the debt graph.