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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

#441

Post by stuartjohnson12 »

chubs wrote: post #407
pseudosavant wrote: post #329

Earlier quoted context omitted.

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?

It's from the rapid exploitation of an asset. If I have a cow, I can milk the cow or kill the cow. If a cow costs $1, maybe I can get $5 worth of milk over the cow's lifespan, or I can kill the cow immediately and get $2 of meat. The man with $100 who buys all the cows in town and kills all of them doubles his money in a short timespan, but now there's a shortage of both meat and milk next season.

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

#442

Post by ethbr1 »

solatic wrote: post #431
xenadu02 wrote: post #304

Earlier quoted context omitted.

Funny enough Chinese State owned banks have been doing much the same for quite some time. No one ever defaults, loans are extended as long as it takes. Presumably the threat of being called into the next party meeting to explain yourself is sufficient motivation for the people running the business to pivot as many times as it takes until they find a way to make money. Worst case the state swaps someone else into lead…

The larger you are, the larger the rounding errors are, the more money that can disappear due to a failure and explained away or extended or written off or whatever euphemism you want to pick. But the sum of rounding errors is less likely to itself be a rounding error. It works until it doesn't, and Evergrande collapsing with $300 billion in Chinese real estate debt will be a case study for years to come.

Isn't the real underlying risk here concentration, as opposed to diversification?

If you have unlimited capital and time horizon, because you're a nation with the power to tax and print money, then you can keep this game going for a long time.

The only thing that mandates it stops are if (a) too many of your loans are correlated with the same thing that crashes (e.g. energy, tulips, AI, etc) or (b) too many of your loans are tied together in a single entity (either because it combined multiple smaller entities or because it tied itself into all their financial arrangements).

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

#443

Post by ethbr1 »

Ekaros wrote: post #276
themgt wrote: post #181

Earlier quoted context omitted.

As Buffett said, "only when the tide goes out do you learn who has been swimming naked" - luckily, skimming the news, there's no obvious huge exogenous macroeconomic shocks on the horizon that could cause "the tide to go out" so to speak, so everything should be ok for now.

Umm... Couldn't whole Iran debacle be such shock? If the effects are not contained?

Woosh.

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

#444

Post by AdamN »

wbl wrote: post #383
JumpCrisscross wrote: post #157

Earlier quoted context omitted.

> If the bank has trouble, shareholders/executives lose - if the banking system has trouble... then QE will solve the bank trouble It's a game of chicken, though. The folks at Lehman and SVB didn't cash out. JPMorgan did. (Both times. Actually, all of the times since 1907.)

JP threw his own money on the table . Silicon valley's VCs whined for bailouts.

And they got them.

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

#445

Post by StanislavPetrov »

Aboutplants wrote: post #257
JumpCrisscross wrote: post #134

Earlier quoted context omitted.

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?

If you think they are going belly up this year it is far cheaper and safer to buy a put. You risk losing the money you spend for it up front but your losses are capped. Right now the 25 strike for a DB Jan 15 2027 put is 2.50/2.85 bid/ask. DB is sitting at $29.44 as of yesterday's close. That's $285 bucks up front that gets into the money if DB falls beneath 22.15 by Jan 15th 2027. But if it moves down sharply in the near future you could just turn around and sell that put for a profit long before expiration.

This is not financial advice, it is gambling advice.

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

#446

Post by [deleted] »

schubidubiduba wrote: post #416
lotsofpulp wrote: post #392

Earlier quoted context omitted.

Participating in a market is work, the only way a market (or life in general) works is if you hold your counterparties accountable. > 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. Nature does not have a mandate that good quality services and products be available at low prices at all times. The rich dude being a “dick” was a tired vet own…

Nature doesn't have a mandate for anything. It's up to us to shape the world we want to have as a society

[deleted]

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

#447

Post by AdamN »

JumpCrisscross wrote: post #83
jasode wrote: post #76

Earlier quoted context omitted.

>, by why would the term private credit bring to mind anything to do with retail specifically? If a layman is unfamiliar that "private credit" is about business debts, and therefore only has intuition via previous exposure to "private X" to guess what it might mean, it's not unreasonable to assume it's about consumer loans. "private insurance" can be about retail consumer purchased health insurance outside of employe…

> But "private credit" ... doesn't fit the pattern above because "private" is an overloaded word Makes sense. Thanks. Private here is as in private versus public companies.

No 'private' meaning that the transaction is between the lender and the borrower without a public rating agency involved (Moody's, etc...). This used to be for niche things like a data center where a rating agency might have trouble figuring out reasonable rating. Then the data center company would go to somebody like Apollo who could do custom analysis on the risk.

But now those private loans are being syndicated to affluent investors who probably don't understand that while some of this debt is solid, alot of it is not. And without a rating agency involved nobody knows how much risk is in there.

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

#448

Post by nyeah »

appleiigs wrote: post #403
codethief wrote: post #317

Earlier quoted context omitted.

> 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…

Sure, it should say PE not VC. But it was pretty accurate. The PE firm won't be on the hook for much of the debt. The nano-debate over the word "push" is probably obscuring more than it's revealing.

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

#449

Post by Ntrails »

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…

> “Shorting” a company does not just mean short selling stock. Instead, it means having a short position, which you can use without unlimited downside.

If you are an equity index holder anyway, simply by not holding any exposure in an otherwise "market" portfolio is a "short" relative to benchmark.

ie if I "buy" the SP500 constituents according to weight but with TSLA zero'd out my portfolio is essentially the same as long SP500 and short weigtht*TSLA.

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

#450

Post by NegativeK »

ehnto wrote: post #366
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…

I think the free market response is that another vet with fair prices will show up, but A) that's a waste of everyones time and very inefficient and B) a real grass roots business takes time and passion, somebody to start it, buy in from the community etc. That work had already been done. To throw it all away for VC or PE to squeeze the life out of it and by extension the community, that's just sad, and a net negativ…

The business owner is in a job that takes a huge amount of their life, with a suicide rate four times higher than average.

People accuse veterinarians of being in it for the money, the same day another owner decides to euthanize their dog because they don't want it anymore. While an angry owner on social media is rallying pitchforks over something that the vet can't even respond to due to privacy standards.

I have no sympathy for PE that's wandering around our lives, destroying the actual purpose of businesses to extract profit from everyone they can.

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