Private Credit: Isolated Defaults Not a Warning Sign for Investors
Three recent failures of American companies have shaken the private credit market, causing a wave of concern among investors. However, these incidents—mostly related to syndicated bank loans or fraud—do not reflect the health of the true private credit market, whose fundamentals remain strong.
Spectacular Yet Atypical Defaults
The successive bankruptcies of Tricolor, First Brands, and a telecommunications conglomerate controlled by Bankim Brahmbhatt have resulted in losses exceeding $1.3 billion for major players, including J.P. Morgan, UBS, Jefferies, and BlackRock. Specifically, Tricolor, an auto dealership specializing in loans for immigrants without a credit history, caused $170 million in losses for its main creditors. First Brands, a heavily indebted auto parts manufacturer, exposed UBS and Jefferies to losses of $500 million and $715 million, respectively. Regarding BlackRock, the case is particularly sensitive: the company discovered that the customer receivables securing its loans were falsified.
At first glance, these episodes might suggest a systemic risk similar to what was observed in the leveraged loan market before the 2008 crisis. However, several factors encourage a more measured perspective. In most cases, these debts do not strictly fall under private credit but instead belong to the syndicated banking market—a parallel universe more exposed to securitization and market liquidity.
A Structured and More Selective Market
Private credit refers to loans directly extended to non-listed companies by specialized funds, bypassing public markets. These are typically secured senior debts, backed by strong collateral and direct communication between lender and borrower. Proskauer points out that the media often confuse private debt with publicly traded debt. Their benchmark index, the Private Credit Default Index, indicates a default rate of less than 1.5%, below the sector's historical average.
This stability is due to the nature of the entities involved: private debt fund managers—such as Apollo, Ares, Tikehau Capital, Blue Owl, CVC, Blackstone, and Morgan Stanley IM—opt for financing structures that suit the size and profitability of companies, reinforced with protective covenants since 2023. Institutional investors and high-net-worth individuals continue to see it as a diversification tool offering an attractive risk/return profile, with annualized returns often exceeding 8% in direct lending strategies.
Regulatory changes also favor the sector: the ELTIF 2.0 framework, effective from early 2024, makes it easier for European investors to access these products by reducing liquidity constraints and minimum investment requirements.
Long-Term Opportunities Despite Turbulence
For individual investors, selectivity remains crucial. Some intermediaries, such as Ramify, now offer direct access to funds or feeder funds from major global firms (Morgan Stanley, Blackstone, Tikehau, CVC, etc.) through evergreen vehicles, allowing for controlled exposure to global private debt.
The macroeconomic environment, characterized by persistently high interest rates and restricted access to bank credit, is likely to continue supporting the demand for private financing. Mid-sized companies and refinancing operations provide fertile ground for alternative lenders. According to Preqin's estimates, the global private credit market size could reach $2 trillion in assets under management by 2026, up from about $1.6 trillion today.
In summary, while recent defaults remind us that credit risk is never zero, they do not indicate a fundamental shift. Private credit remains an expanding, structured, and diversified segment, with its performance relying more on the rigor of managers than on market cycles.
This content has been automatically translated using artificial intelligence. While we strive for accuracy, some nuances may differ from the original French version.
