Private Credit News Weekly Issue #81: BDCs Crater, Banks Surge 45%, and $136 Billion Consumer Bet
Cliffwater BDC Index down 6.6% while banks jump 45% as private credit snaps up 14x more consumer debt and Ares calls its PE business "sub-scale"
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The year-end scorecard is brutal. The Cliffwater BDC Index tracking 41 vehicles dropped 6.6% in 2025 while the S&P 500 gained 18.1%. That’s the worst relative performance since 2020 and a dramatic reversal from 2023 and 2024 when BDCs gained 25.4% and 14.1% respectively.
Meanwhile, the six titans of US banking rose an average of more than 45% this year. JPMorgan, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley collectively crushed the top four public alternative asset managers, which are down collectively with only Carlyle making significant gains. According to Wells Fargo analyst Mike Mayo, “it’s revenge of the banks.”
The regulatory environment swung decisively in banks’ favor. The second Trump administration rolled back post-crisis restrictions including proposed capital rules, stress tests, and the 2013 leveraged lending guidance that recommended companies’ total debt shouldn’t exceed six times EBITDA. Banks adhered to avoid regulatory scrutiny, creating the opening for private credit. Now that’s gone.
“For the last 15 years, banks have been competing against nonbanks, analogous to playing basketball with one hand behind their back,” Mayo said. “All of the sudden banks can now play against their competitors with two hands. That’s a euphoric feeling.”
But private credit firms aren’t retreating. They’re doubling down on risk. Managers including KKR, Blue Owl, and Sixth Street snapped up $136 billion of consumer loans in 2025, nearly 14 times the $10 billion purchased in 2024. The buying spree includes credit cards, buy-now-pay-later debt, and other unsecured personal loans. Consumer debt is typically unsecured with no recourse toward the borrower, and BNPL’s resilience during an economic downturn hasn’t been tested.
“These deals underscore an emerging trend where private capital is fuelling rapid growth in unsecured consumer lending, while regulated incumbents continue to move with caution,” KBW analysts wrote. The rush comes just as credit quality deteriorates and banks’ credit card lending declined. Revolving credit balances at US banks fell slightly in 2025 to just above $1 trillion after growing quickly post-pandemic.
Goldman Sachs BDC embodies the stress. The per-share value of its holdings has slid for seven straight quarters due to souring loans. One analyst ranks Goldman BDC’s credit performance 25th of 26 publicly traded BDCs. Total assets are approximately $3.4 billion of the roughly $162 billion Goldman’s private credit business manages. The BDC’s net asset value fell to $12.75 per share in Q3, down about 20% from $15.92 in 2021.
Ares CEO Michael Arougheti told the Financial Times his firm is open to buying a large private equity group, calling Ares’ current $25 billion PE business “sub-scale” relative to rivals. Private equity represents just 4.2% of Ares’ current assets, down from 13.5% when the firm went public in 2014. The firm set a target of managing at least $775 billion in three years from just under $600 billion at Q3 end.
Short sellers are piling in. Short interest across 47 publicly traded BDCs totaled around $1.83 billion this year with more than $500 million of new shorts, up 38% from a year ago. Traders netted mark-to-market profits of approximately $132.7 million, roughly 7% higher than last year.
Key Market Themes
1. BDCs Post Worst Year Since 2020 as Banks Surge
The Cliffwater BDC Index dropped 6.6% in 2025 versus the S&P 500’s 18.1% gain, marking the worst relative performance since 2020. In 2023 and 2024, the index gained 25.4% and 14.1% respectively. The vehicles were pummered by rate cuts, market blow-ups, and rising signs of stress. A lack of deals forced private lenders to shrink margins, diminishing earnings.
“There’s a level of skepticism from our clients around the very large broadly distributed vehicles, if they will be able to maintain the returns that they’ve had before,” said Matt Malone, head of investment management at Opto Investments. The question facing investors: “Is this the best risk-adjusted way for us to invest in private credit for our clients?”
The six titans of US banking rose an average of more than 45% this year. Stocks of the top four public alternative asset managers are collectively down, with only Carlyle making significant gains. That’s the strongest outperformance by traditional lenders in a generation.
Strategic Implications
Blue Owl tried merging its smaller private fund into its larger publicly traded OBDC when it was trading at roughly 20% discount to NAV. The firm backtracked days later after scrutiny over potential investor losses. Redemption requests into Blue Owl OBDC II exceeded 5% of NAV in November. Blackstone’s BCRED expected Q4 redemptions to reach 4.5% of NAV as of September 30.
2. Regulatory Rollback Delivers “Revenge of the Banks”
The second Trump administration’s appointees at the Federal Reserve and other regulators rolled back post-crisis restrictions including proposed capital rules and stress tests. Most significantly, regulators scrapped 2013 guidance around leveraged loans that recommended companies’ total debt shouldn’t exceed six times EBITDA.
While not a hard rule, many banks adhered to avoid regulatory ire, creating an opening for private credit firms. According to Wells Fargo analyst Mike Mayo, “for the last 15 years, banks have been competing against nonbanks, analogous to playing basketball with one hand behind their back.”
As regulation eased, top banks boosted loan portfolios at the fastest pace since the financial crisis. JPMorgan led an $8 billion effort for 3G Capital’s Skechers acquisition, agreed to $17.5 billion to help Warner Bros. Discovery split in two, and offered $20 billion for Electronic Arts acquisition, then the largest-ever single-bank commitment for a leveraged buyout. Wells Fargo pledged $29.5 billion for a bridge facility when Netflix began lining up financing for its Warner Bros. bid.
Market Dynamics
Bankers acknowledge there’s no turning back the clock. The biggest private-markets firms are established lending rivals and occasional partners. But in recent quarters, big banks started flexing their lending muscles after beating back a slew of rules. They defeated Biden-era Basel III Endgame capital requirements and got reprieves on oversight pushing them to hold more capital.
3. Private Credit Buys $136 Billion Consumer Debt
Private credit groups purchased or struck forward flow agreements to purchase $136 billion of consumer loans in 2025, according to KBW analysts. That compared with just $10 billion in 2024, a nearly 14-fold increase. Firms including KKR, Blue Owl, and Sixth Street piled into credit cards and buy-now-pay-later debt.
KKR agreed to purchase a multibillion-dollar credit card portfolio from New Day, a private equity-backed European company. Affirm, the BNPL player set up by PayPal co-founder Max Levchin, struck deals with Sixth Street and insurers Prudential and New York Life to sell billions of current and future loans as a key plank of growth plans.
Consumer debt including credit cards and personal loans is typically unsecured with no recourse toward the borrower. BNPL remains relatively new and its resilience during economic downturns hasn’t been fully tested.
Timing Concerns
The rush comes just as credit quality deteriorates in the US. Revolving credit balances at US banks grew quickly post-pandemic but fell slightly in 2025 to just above $1 trillion. According to former KeyBanc analyst Adam Josephson, “there are no signs out there that piling into consumer debt at this point of the economic cycle would be advisable.”
4. Goldman Sachs BDC Struggles Through Seven Quarters of Declines
Goldman Sachs BDC’s per-share value of holdings has slid for seven straight quarters due to souring loans. One analyst ranks Goldman BDC’s credit performance 25th of 26 publicly traded BDCs. The company changed management and restructured loans by delaying interest payments and extending maturity dates.
Net asset value fell to $12.75 per share in Q3, down about 20% from $15.92 in 2021. The NAV decline also reflects several special payouts to investors this year. In Q3, 2.6% of its investment portfolio was essentially in default and presenting risk of substantial loss.
“Where we’ve seen continued write-downs is on the more legacy names where we are not seeing a big turnaround,” said David Miller, co-CEO of Goldman Sachs BDC. “But outside of those legacy names, we feel pretty good about the portfolio.”
Portfolio Issues
For years, Goldman’s BDC functioned almost like an island, separate from the rest of Goldman’s private-lending asset management business. It bought loans tied to private-equity deals originated by other banks. Then it focused on lending directly to small and midsize companies, mostly backed by PE firms.
Executives later told colleagues the loans had underwriting issues, including some made to companies with weak financials that should never have been approved, according to former Goldman private-credit employees. PIK at Goldman’s BDC trended around 4% of total investment income five years ago, rose to about 12% last year, though fell to 8% in Q3.
5. Ares Eyes PE Acquisition, Calls Business “Sub-Scale”
Ares Management is open to buying a large private equity group to bolster its leveraged buyout business, CEO Michael Arougheti told the Financial Times. He said Ares could acquire a large PE group as US retirement plans explore adding private assets to portfolios, giving it heft to compete with Blackstone, KKR, and Apollo.
“I could see a world where we look to expand the private equity franchise, either by getting larger, geographically diversifying, looking at sector-specific capabilities that would be additive to other parts of the franchise,” Arougheti said. The firm set a target of managing at least $775 billion in three years from just under $600 billion at Q3 end.
Arougheti acknowledged the company’s current $25 billion private equity business was “sub-scale” relative to rivals. Private equity represents just 4.2% of Ares’ current assets, down from 13.5% when the firm went public in 2014.
Strategic Context
“We have a lot of financial capacity to buy and we have a lot of financial capacity to build,” Arougheti said. He signaled that a firm managing $100 billion or more in private equity investments would be within Ares’ reach. “Even the largest global private equity managers would not be significant from a market cap standpoint relative to where we are.”
6. Private Credit Hits $3.5 Trillion Despite Stress Tests
Private credit’s expansion continued at remarkable pace in 2025, with global AUM reaching approximately $3.5 trillion, representing roughly 17% year-over-year growth. Capital deployment accelerated to $592.8 billion in 2024, up 78% from prior-year volumes. Industry projections anticipate the market reaching $5 trillion by 2029.
Yet beneath aggregate growth, 2025 revealed significant structural tensions. Non-accrual rates for flagship corporate lending funds averaged 2.2%, with weighted-average non-accruals at 1.8%. Interest coverage ratios across BDC portfolios deteriorated to approximately 2.0x, with an increasing percentage of portfolio companies falling below this threshold.
The Blue Owl controversy in November crystallized investor concerns. The proposed merger between OBDC and OBDC II would have restricted investors in the $1.7 billion OBDC II from redemptions until deal closure, even as the merger implied approximately 20% paper losses based on where publicly traded OBDC shares were trading relative to NAV.
First Brands Fallout
The September First Brands bankruptcy evolved into a watershed moment when November fraud allegations detailed a multi-billion dollar scheme. The lawsuit filed by interim management accused founder Patrick James of “grievous misconduct,” alleging he fraudulently secured billions while diverting over $700 million to himself and affiliated entities between 2018 and 2025.
7. Short Sellers Target BDCs as Stress Indicators Rise
Short interest across 47 publicly traded BDCs totaled around $1.83 billion this year with more than $500 million of new shorts, up 38% from a year ago, according to S3 Partners. Traders netted mark-to-market profits of approximately $132.7 million, roughly 7% higher than last year.
Short sellers are taking note of rising stress signals within private credit and using publicly traded BDCs to express that outlook. Income from payment-in-kind debt, which allows borrowers to defer interest and can signal inability to pay with cash, has been rising across BDCs, reaching 7.9% in Q3 according to Raymond James.
In Q3, 3.6% of investments across BDCs were on non-accrual status, a designation indicating a lender expects losses, Raymond James data show. BDCs in the bottom quartile for returns have lagged top-quartile peers by around 7 percentage points annually since going public.
Manager Selection
“It is not until there is some credit weakness across the industry that it becomes more apparent that manager selection will matter more,” said Kort Schnabel, partner and co-head of US direct lending at Ares. “We believe we are at the beginning stages of that starting to bear out.”
8. Asset-Based Lending Emerges as Bright Spot
Despite First Brands fallout, asset-based lending emerged as one of 2025’s most compelling growth stories. The ABL market demonstrated strong activity throughout the year, with clearing banks performing particularly well in mid-market space by offering competitive pricing alongside complementary banking products. Industry projections estimate the global ABL market will reach $1.3 trillion by 2030, growing at approximately 10.3% CAGR.
Non-recourse, off-balance-sheet structures proved particularly popular, along with hybrid ABL and cash flow offerings. According to a Preqin survey, 58% of institutional investors indicated they would prioritize ABL strategies in 2025.
In a competitive environment, corporate borrowers benefited from lower pricing, larger single-hold levels, and structural enhancements such as accordions. Asset-heavy sectors including retail and manufacturing featured prominently in transaction flow.
Deals of Note
Consumer debt - Private credit firms including KKR, Blue Owl, Sixth Street purchase or strike forward flow agreements for $136B consumer loans in 2025 vs $10B in 2024, including credit cards and BNPL debt
New Day - KKR agrees to purchase multibillion-dollar credit card portfolio from PE-backed European company
Affirm - Strikes deals with Sixth Street, Prudential, New York Life to sell billions of current and future BNPL loans
Netflix-Warner Bros. - Wells Fargo pledges $29.5B bridge facility for bid
The Reality Check
Banks gaining 45% while alt managers fall isn’t about sympathy for regulated lenders. It’s the market pricing which business model works when competition returns. Private credit spent a decade winning because banks couldn’t play. Now they can. The structural advantage is gone, and deployment pressure is forcing managers into consumer debt banks won’t touch.
Arougheti calling Ares’ PE business “sub-scale” despite managing $600 billion total reveals the real anxiety: even winners worry they’re not big enough. When private credit’s fastest-growing firm needs acquisitions to stay competitive, the message is clear. Scale is survival. Specialization is risk.
The 14-fold jump in consumer debt purchases while credits deteriorate isn’t strategy. It’s necessity. Managers raised capital assuming they could deploy into corporate lending at attractive spreads. Instead, they’re buying unsecured credit cards and BNPL paper as banks retreat. That’s not finding opportunity. That’s chasing yield into the last pocket of the market still offering it. The cycle always ends the same way.
