Private Credit News Weekly Issue #80: Defaults Jump, Banks Strike Back, and Blackstone's Redemptions Double
US private credit default rate hits 5.7% as regulators scrap 2013 lending rules while BCRED redemptions rise to 4.5% from 1.5% a year ago
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The pressure is mounting from multiple directions. US private credit defaults jumped to 5.7% in November from 5.2% in October on a trailing 12-month basis, according to Fitch Ratings tracking 1,200 borrowers. For a subset of 300 privately issued loans rated by Fitch, the rate surged to 9.3% from 7.7%.
The composition tells the real story. About 59% of the 91 defaults from November 2024 through last month stemmed from payment-in-kind or interest deferrals, while bankruptcies made up just 7%. Fitch recorded 13 private credit default events in November, with nine introducing PIK interest, three involving stressed maturity extensions, and one from an uncured payment default.
Then regulators delivered a one-two punch. First, Democratic Senators Elizabeth Warren and Jack Reed urged top banking regulators to stress test the $1.7 trillion market, probing credit risks at all banks with at least $50 billion in assets “with a special emphasis on loans to private credit firms.” Hours later, the FDIC and OCC scrapped 2013 guidance around leveraged loans, the rules bankers blamed for hamstringing their ability to lend and helping private credit blossom.
“The fact that we can now compete for loans that we weren’t able to offer before is an opportunity for us,” said Wells Fargo CEO Charles Scharf at a Goldman Sachs conference. PNC CEO William Demchak was more direct: “You will see us expand some of the buckets we’ve held back because of the way they defined it, which is exciting.”
The 2013 guidance recommended a leverage limit of six times EBITDA. While not hard-and-fast, many banks adhered to it to avoid regulatory ire, creating an opening for private credit firms. According to Barclays strategists, “highly leveraged deals found financing from non-bank lenders, catalyzing the growth of US private credit.” The rollback “could present a moderate headwind to private credit growth in portions of middle market direct lending.”
Meanwhile, BDC profitability declined in Q3. Median net investment income fell to 4.7% of assets from 4.8% in Q2, according to Moody’s. Median non-accruals rose to 1.3% from 1.2%, mainly from uptick within perpetual non-traded BDCs. For publicly-traded BDCs, the median non-accrual rate actually fell to 2.1% from 2.4%.
Blackstone’s BCRED saw redemptions rise to an estimated 4.5% of shares for Q4, up from 1.5% a year ago. Capital inflows were about $3.3 billion to date, up from $3.1 billion in the same period last year. “There’s obviously been an enormous amount of noise out there around private credit, much of which we would push back with the facts,” said Blackstone President Jon Gray.
But the facts include US banks lending $363 billion to private credit firms, private equity shops, and hedge funds through November, up 26% this year, according to Fitch. Banks added just $291 billion across all other loan types. For banks with more than $10 billion in assets, private credit vehicles accounted for about 25% of non-bank lending at Q3 end.
Oak Hill Advisors raised $8 billion for senior direct lending, double its original target and the largest fundraise in the firm’s history. With leverage, total available capital reaches $17.7 billion. Pimco raised more than $7 billion for asset-based finance, including its first funds designed exclusively for insurance companies and wealthy individuals.
And a 600-page Austrian police report examined by Bloomberg revealed how billionaire Rene Benko’s €23 billion empire collapsed, including accepting a loan at an annualized rate of 70% and commitments to pay steep interest rates as liquidity tightened. The filings show “how the opaque world of private credit can go bad, a cautionary tale for the current market as volumes of non-traditional, less-regulated lending surge.”
Key Market Themes
1. Default Rate Jumps as PIK and Extensions Dominate
Fitch’s default rate for 1,200 US private debt borrowers hit 5.7% in November from 5.2% in October on a trailing 12-month basis. For 300 privately issued loans rated by Fitch, the rate surged to 9.3% from 7.7%.
The composition reveals what’s happening beneath the surface. About 59% of the 91 defaults from November 2024 through last month stemmed from PIK or interest deferrals, while bankruptcies made up just 7%. Of 13 November default events, nine introduced PIK interest, three involved stressed maturity extensions, and one was an uncured payment default.
Industrial and manufacturing, building and materials, and broadcasting and media sectors each posted two default events in November. The pattern shows borrowers avoiding bankruptcy by deferring payments rather than restructuring or liquidating.
BDC Profitability Declines
Median net investment income for BDCs rated by Moody’s fell to 4.7% of assets in Q3 from 4.8% in Q2. Median non-accruals measured at cost rose to 1.3% from 1.2%, mainly from uptick within perpetual non-traded BDCs. For publicly-traded BDCs, the median non-accrual rate fell to 2.1% from 2.4%.
Aggregate net investment losses totaled $302 million in Q3 versus $878 million in Q2, with approximately 54% of investment losses realized. PIK income ticked up modestly, though “the vast majority of BDCs’ income remains cash-oriented despite the increase in PIK,” Moody’s analysts wrote.
2. Regulators Scrap 2013 Rules, Banks Cheer
The FDIC and OCC rolled back 2013 guidance around leveraged loans that bankers complained hamstrung their ability to lend. The guidance recommended a leverage limit of six times EBITDA. While not a hard rule, many banks adhered to avoid regulatory scrutiny, creating an opening for private credit.
Wells Fargo CEO Charles Scharf said at a Goldman Sachs conference, “the fact that we can now compete for loans that we weren’t able to offer before is an opportunity for us.” PNC CEO William Demchak added, “you will see us expand some of the buckets we’ve held back because of the way they defined it, which is exciting.”
According to Barclays strategists, “highly leveraged deals found financing from non-bank lenders, catalyzing the growth of US private credit.” The rollback creates “space for banks to structure some more creative mezzanine solutions for borrowers” and “could present a moderate headwind to private credit growth in portions of middle market direct lending, particularly to some of the larger BDCs.”
Bipartisan Pressure
Hours before the rollback, Democratic Senators Elizabeth Warren and Jack Reed urged top banking regulators to stress test the $1.7 trillion market, probing credit risks at all banks with at least $50 billion in assets “with a special emphasis on loans to private credit firms and other non-bank financial institutions.”
3. BCRED Redemptions Rise to 4.5% from 1.5%
Blackstone’s BCRED saw redemptions rise to an estimated 4.5% of shares for Q4 from 1.5% a year ago. Capital inflows were approximately $3.3 billion to date, up from $3.1 billion in the same period last year.
“There’s obviously been an enormous amount of noise out there around private credit, much of which we would push back with the facts,” Blackstone President Jon Gray said at the Goldman Sachs Financial Services Conference. He cited Silicon Valley Bank’s collapse and Liberation Day tariffs as prior panic moments.
“Whenever you get a lot of negative headlines, particularly among the individual investors, you can see a shift in sentiment,” Gray said. He pointed to BCRED’s 10% annualized total return since inception, outperforming the leveraged loan index by 360 bps over the same period.
Gray’s Defense
According to Gray, private credit is “an innovation that’s been accelerating over the past five to seven years. What you’re basically doing is bringing investors directly up to borrowers. It’s not that much different than what Amazon did to revolutionize the delivery of goods to consumers.”
4. Banks Lend $363 Billion to Private Credit Rivals
US banks made about $363 billion of new non-bank loans through November 26, up 26% this year, according to Fitch citing Federal Reserve data. Banks added $291 billion across all other loan types. Regulatory capital requirements and strong demand from borrowers contributed to the uptick.
For banks with more than $10 billion of assets required to disclose exposures to non-bank entities, private credit vehicles accounted for about 25% of non-bank lending at Q3 end. Mortgage loans and lending to private equity each accounted for 23% of total loan balances.
Fitch said it doesn’t view risks as systemic for banks, but “a comprehensive assessment of financial stability risks” is difficult given the opaque nature of the market. For large banks, direct exposure to non-banks is “very manageable.” But for the 20 banks most concentrated to these institutions, they have “limited protection against a downturn for this sector.”
Interconnection Risk
Critics have voiced concern that any downturn in the market, or any deterioration in underlying borrower health, could exacerbate wobbles in the banking sector. The $363 billion in new lending to non-banks versus $291 billion to all other loan types shows where growth is concentrating.
5. Private Credit’s New Tactic: Buy Syndicated Loans First
Private credit firms are buying slices of companies’ syndicated loans to gain access to borrowers and pitch refinancings. The strategy requires scale: a liquid credit team, large CLO portfolio to buy into syndicated loans, and ability to write hefty checks.
Blackstone recently provided $2 billion to Mitratech to refinance bank debt. Blackstone held a piece of the syndicated debt, which helped pitch the refinancing even though private credit would be more expensive. The firm used similar strategies to close deals for Clario, Teneo, Justrite Safety Group, and Signant Health this year.
“You have to do your own proprietary diligence, structure a customized solution and be able to go to them and say, ‘You’re done. Here’s a complete, one-stop solution for even multibillion-dollar deals,’” said Brad Marshall, Blackstone’s global head of private credit strategies.
The Numbers
About $37.7 billion of broadly syndicated loan deals were refinanced into private credit so far this year, compared with $28.2 billion vice versa, according to JPMorgan. In November alone, about $2.9 billion of broadly syndicated debt was refinanced with private credit, but no private credit was refinanced in reverse.
6. Benko’s €23 Billion Empire Collapsed at 70% Interest
A 600-page Austrian police report examined by Bloomberg reveals how billionaire Rene Benko’s €23 billion empire collapsed, depicting months of frantic efforts to plug growing cash shortages. As liquidity tightened, he repeatedly committed to pay steep interest rates, including a loan at an annualized rate of 70%.
The Weston family, selling Selfridges for nearly £4 billion, was prepared to loan Benko £300 million to close the transaction. The six-month notes came with an initial 4.5% coupon. When Benko couldn’t repay in February 2023, he agreed to an extension with interest nearly doubling to 8.5%.
According to a Deloitte forensic financial analysis, Signa Holding was likely insolvent already in November 2022. But Benko spent the following months frantically seeking money and accepting increasingly harsh terms. One short-term credit line, the “Ameria loan” from the Arduini family, offered €200 million for three weeks at an annualized rate of 70% including interest and fees.
Cautionary Tale
The details “serve as a prime example of how the opaque world of private credit can go bad, a cautionary tale for the current market as volumes of non-traditional, less-regulated lending surge,” Bloomberg reported. Signa’s creditors continue trying to recoup their money, with claims across main units totaling more than €20 billion.
7. Oak Hill Raises $8 Billion, Pimco Gets $7 Billion
Oak Hill Advisors raised $8 billion in equity commitments for senior direct lending, about double its original target and the largest fundraise in the firm’s history. The OHA Senior Private Lending Fund will have total available capital of $17.7 billion with leverage.
The fund will focus on first lien and unitranche loans to companies with at least $75 million of EBITDA, investing across “recession-resistant” industries mostly in North America. Oak Hill, bought in 2021 by T. Rowe Price Group, manages about $108 billion in assets.
Separately, Pimco raised more than $7 billion for an asset-based finance strategy, including its first funds designed exclusively for insurance companies and wealthy individuals.
Market Timing
Oak Hill and other direct-lending firms are betting on a return of private equity M&A after a period where high rates weighed on dealmaking. Goldman Sachs CFO Denis Coleman said this week that activity in the industry is starting to return.
Deals of Note
Mitratech - Blackstone provides $2B private credit facility to refinance bank debt for Ontario Teachers-backed software company, using strategy of buying into syndicated debt first to win mandate
Auctane - Thoma Bravo reaching out to private credit firms for approximately $5B direct loan to support proposed merger with shipping software firm formerly known as Stamps.com
Stago Group - Hayfin Capital Management and ICG arranging debt package of around €500M for Archimed’s purchase
Markerstudy - UK insurer in talks with private credit lenders to refinance debt with roughly £1.4B of new loans
Ravenswood Gold - Australian gold miner secures $650M private credit loan from RRJ Capital for refinancing
Bally’s - Casino operator wraps up deal to increase term loan to $1.1B, allowing it to refinance debt and pay fees tied to New York State casino licenses
Mecachrome - Carlyle Credit provides €290M debt package to French company in rare private credit deal tapping Europe’s military buildup
FineToday Holdings - Japanese personal care business shareholders receive dividend payouts funded by $350M private credit loan
BNP Paribas SRT - French bank completes synthetic risk transfer tied to $1.25B worth of revolving credit facilities for US BDCs, privately placed with single investor
The Reality Check
Defaults hitting 5.7% with 59% coming from PIK and deferrals rather than bankruptcies shows the playbook: avoid filing, extend maturity, defer interest. It works until it doesn’t. The 9.3% default rate for Fitch-rated loans tells a different story than the broader 5.7%, suggesting rated paper is under more stress.
BCRED redemptions tripling to 4.5% from 1.5% despite $3.3 billion of inflows signals retail investors are getting nervous. Gray calling it “noise” and comparing private credit to Amazon revolutionizing delivery is confident. Whether that confidence is justified depends on whether the 10% annualized return holds when defaults keep rising.
The FDIC and OCC scrapping 2013 guidance isn’t just technical. It’s banks getting permission to compete again. When Wells Fargo and PNC CEOs are “excited” to expand lending they previously couldn’t do, that’s market share shifting. Barclays calling it a “moderate headwind” for private credit understates the competitive pressure coming.
Banks lending $363 billion to private credit firms while adding just $291 billion to all other loan types reveals the interconnection risk. When 25% of non-bank lending goes to private credit vehicles and Fitch says the 20 most concentrated banks have “limited protection against a downturn,” the exposure is real.
Blackstone’s tactic of buying syndicated loans to pitch refinancings is smart. The $37.7 billion refinanced from broadly syndicated into private credit versus $28.2 billion going the other way shows it’s working. But it also shows private credit competing on relationship and execution rather than price, which gets harder when banks can lend at six times EBITDA again.
Benko accepting a 70% annualized rate for three weeks of liquidity demonstrates what happens when opacity meets desperation. The €23 billion empire collapse serves as exactly what Bloomberg called it: a cautionary tale for the current market. When sophisticated billionaires and institutional investors all got played, the lesson is that opacity hides problems until they explode.
Oak Hill raising $8 billion and Pimco getting $7 billion shows capital still flows to established managers. But raising happens in the good times. Deploying at attractive risk-adjusted returns while defaults tick up, spreads compress, and banks re-enter the market is the harder part.
Warren and Reed urging stress tests on the same day regulators scrap lending restrictions captures the contradiction. One side wants more scrutiny. The other wants less regulation. Private credit sits in the middle, benefiting from light oversight while attracting increasing attention. That balance doesn’t hold indefinitely.
Regarding the shifts in private credit, your article offers a very keen perspective. It makes me wonder if such moves to ease bank lending will truly improve systemic stability overal?
The PIK/deferral composition of defaults (59%) versus actual bankruptcies (7%) is a really telling indicator of how extend-and-pretend is becoming the norm in private credit. The 9.3% default rate for Fitch-rated loans versus the broader 5.7% suggests credit quality divergence is accelerating across the market. Banks scrapping the 2013 leveraged lending guidance on the same day Warren/Reed pushed for stress tests is peak regulatory whiplash. The interconnection risk with $363B in bank lending to private credit rivals feels underpriced, especially when Fitch flags that the 20 most concentrated banks have "limited protection." Benko accepting 70% annualized for 3 weeks shows what desperation looks like when opacity meets illiquidity.