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Posted on 01/23/2026 10:38:52 AM PST by Presbyterian Reporter
The sudden collapse last fall of a string of American companies backed by private credit has thrust a fast-growing and opaque corner of Wall Street lending into the spotlight.
Private credit, also known as direct lending, is a catch-all term for lending done by nonbank institutions. The practice has been around for decades but surged in popularity after post-2008 financial crisis regulations discouraged banks from serving riskier borrowers.
That growth — from $3.4 trillion in 2025 to an estimated $4.9 trillion by 2029 — and the September bankruptcies of auto-industry firms Tricolor and First Brands have emboldened some prominent Wall Street figures to raise alarms about the asset class.
JPMorgan Chase CEO Jamie Dimon warned in October that problems in credit are rarely isolated: “When you see one cockroach, there are probably more.” Billionaire bond investor Jeffrey Gundlach a month later accused private lenders of making “garbage loans” and predicted that the next financial crisis will come from private credit.
While fears about private credit have subsided in recent weeks in the absence of more high-profile bankruptcies or losses disclosed by banks, they haven’t lifted completely.
Companies that are most linked to the asset class, such as Blue Owl Capital , as well as alternative asset giants Blackstone and KKR , still trade well below their recent highs.
The rise of private credit Private credit is “lightly regulated, less transparent, opaque, and it’s growing really fast, which doesn’t necessarily mean there’s a problem in the financial system, but it is a necessary condition for one,” Moody’s Analytics chief economist Mark Zandi said in an interview.
Private credit’s boosters, such as Apollo co-founder Marc Rowan, have said that the rise of private credit has fueled American economic growth by filling the gap left by banks, served investors with good returns and made the broader financial system more resilient.
Big investors including pensions and insurance companies with long-term liabilities are seen as better sources of capital for multiyear corporate loans than banks funded by short-term deposits, which can be flighty, private credit operators told CNBC.
But concerns about private credit — which tend to come from the sector’s competitors in public debt — are understandable given its attributes.
After all, it’s the asset managers making private credit loans that are the ones valuing them, and they can be motivated to delay the recognition of potential borrower problems.
“The double-edged sword of private credit” is that the lenders have “really strong incentives to monitor for problems,” said Duke Law professor Elisabeth de Fontenay.
“But by the same token … they do in fact have incentives to try to disguise risk, if they think or hope that there might be some way out of it down the road,” she said.
De Fontenay, who has studied the impact of private equity and debt on corporate America, said her biggest concern is that it’s difficult to know if private lenders are accurately marking their loans, she said.
“This is a market that is extraordinarily large and that is reaching more and more businesses, and yet it’s not a public market,” she said. “We’re not entirely sure if the valuations are correct.”
In the November collapse of home improvement firm Renovo, for instance, BlackRock and other private lenders deemed its debt to be worth 100 cents on the dollar until shortly before marking it down to zero.
Defaults among private loans are expected to rise this year, especially as signs of stress among less creditworthy borrowers emerge, according to a Kroll Bond Rating Agency report.
And private credit borrowers are increasingly relying on payment-in-kind options to forestall defaulting on loans, according to Bloomberg, which cited valuation firm Lincoln International and its own data analysis.
Ironically, while they are competitors, part of the private credit boom has been funded by banks themselves.
Finance frenemies
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Now we have Private Credit or Direct Lending to less than creditworthy customers to the tune of $3.4 trillion in 2025.
Another time-travel article brought to you courtesy of AI....
Surprise! Surprise! Surprise!
Just in time for the midterm elections!
What are the odds?!!?
Nonbank lending has its advantages for the economy. Most nonbank lenders are much more willing to engage in workouts with impaired borrowers and to take possession of and run a business or real estate if the borrower no longer can. Many are experts in the market and even have a “loan to own” strategy in making loans. That is much better than a bank which almost always takes possession of collateral and sells it quickly in a UCC sale, which tends to dampen prices and create a negative spiral in the market. Or they hold the impaired loan on their books for a long time, scared to take any action.
Why have the mafia when you have the government and their legit business partners;-)
The value of American subprime mortgages was estimated at $1.3 trillion as of March 2007,
https://en.wikipedia.org/wiki/Subprime_mortgage_crisis
Can’t they just borrow it from the Somalis?
EC
Well, if Trump gets his wish to cap credit card interest rates to 10%, expect private credit business to explode.
Oh my, the competitors for investor money are warning about the risks of investing in area they don’t profit from? Not to say investment in private lending isn’t risky. Anything with higher expectations of returns will have higher risk,
The Left has already started ramping up the fear mongering. The Leftist media industrial complex will be in high gear this year.
Find me a funeral home, veterinary practice, dental practice, physicians group, or real estate portfolio, toll chemical manufacturer, that hasn't sold out to private equity groups, like JB Pritzker & Family?!
Agreed. And, as a reminder, the bankruptcy of Tricolor (mentioned in the article) specialized in car loans to illegals.
But it’s racist if we don’t give them the money somehow.
“””The Left has already started ramping up the fear mongering. The Leftist media industrial complex will be in high gear this year.””””
Yes, it is going to be rough road ahead as we deal with politicians campaigning ahead of the November 2026 elections.
For the last 25 years Congress has not been doing their job to reign in government spending.
Lending money is inherently risky business, but one thing the articles doesn’t expand on is that the private credit industry doesn’t shovel money to whoever wants it without doing lots of due diligence. They also form syndicates to spread risks and impose covenants to protect their investments.
Moreover, many smaller businesses do not qualify for bank loans and therefore rely on private credit not only for money but also often for advise and guidance on how to increase value in their companies, thereby lessening risk. Some private lenders will take equity positions or hold warrants that can also help to offset any decreases in NOI from a general lowering of interest rates.
To be sure there’s always a potential for losses, but smart lenders do everything they can to protect themselves.
Tricolor? That is a term Mexicans use for their flag. Pretty blatant FU to the US.
Teamsters lost nothing on their casino loans because the loans were backed by Nino, Rocco, Luigi in concert with their cousin Myer.
For example in the 60s a junket of union members from NJ went to LV and were granted a lot of credit vis a vis their modest incomes. When they returned to nj they pointed out that gambling debts were not collectible in NJ. They fail to note that the law meant lawfully collectible. Along came the collectors who pointed out they were fully collectible along with a 2% weekly vig. Failure to pay was a health risk.
The soccer team is referred to as “El Tri”
IIRC it derives from the three colors of the Mexican flag. The national team represents the flag, El Tricolor, which is abbreviated to El Tri.
Bingo
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