Private Debt News Weekly Issue #43: Defaults Climb, Spreads Compress, and Retail Floods In
Defaults Rise to 5.7%, Regulators Push for Oversight, and Asset Managers Fight to Win New Deals
This week in private credit, defaults rise, margins compress, and investor scrutiny deepens, as capital continues flooding into a market under pressure. Germany’s BaFin is calling for transparency after insurers were stung by CRE exposure, while private credit managers slash spreads and crank up leverage to stay competitive. Meanwhile, retail continues to pour in, with Blue Owl, Blackstone, and Lincoln all launching products aimed at Main Street.
On the M&A front, CVC eyes Fortress, Macquarie launches a direct lending platform, and in Brazil, Itau bets on securitization as FIDCs see record flows. Amid it all, private credit restructurings surge as Fitch puts defaults at 5.7% in February—a new cycle high.
Here’s your breakdown of the week’s biggest trends, deals, and risks reshaping the private credit market.
Key Market Trends
Defaults Rise to 5.7% as Healthcare, Consumer Sectors Struggle
Private credit defaults hit 5.7% in February, the highest monthly level in the current cycle, according to Fitch.
Sectors at Risk:
Healthcare: 7.5% default rate.
Consumer Products: 7.6%.
Software: Slight relief, with defaults easing to 6.7%.
All eight defaults in February involved interest deferrals or conversion to PIK, further fueling concerns about earnings quality.
Why It Matters:
A string of “quiet” restructurings is adding to worries that the true risk profile of private credit portfolios is underreported.
Expect further stress in lower-rated credits as lenders reach down the credit spectrum to deploy dry powder.
BaFin Tells Insurers to 'Look Behind the Curtain' on Private Credit
Germany’s financial regulator is pressing insurers to sharpen governance on private credit deals, following CRE-driven losses from investments tied to Adler and Signa.
What They’re Saying:
BaFin is reviewing risk controls at 30–40 insurers with above-average alternative asset exposure.
In some cases, over 70% of portfolios were invested in illiquid alternatives, including real estate, infra, mezzanine loans.
What’s Next:
More regulatory scrutiny on how insurers vet and approve large direct lending deals.
A renewed focus on limiting single-issuer exposure and strengthening board-level oversight.
Private Credit Managers Slash Spreads, Add Leverage to Win Deals
Facing muted deal flow and stiff competition from reopened loan markets, direct lenders are lowering spreads and boosting leverage.
Key Data Points:
Average spreads have compressed from 675 bps in March 2023 to 500 bps in early 2025 (JPMorgan, KBRA).
Deals like Ares’ $2.2 billion ModMed financing are now pricing at 4.75% over SOFR—with leverage as high as 10x EBITDA.
Dividend recaps, PIK toggles, and looser covenants are increasingly standard.
Why It Matters:
With banks winning back refinancing deals, private credit is fighting to hold ground in new originations by pushing structural boundaries.
Retail Access Expands: Blue Owl, Blackstone, and Lincoln Push In
Retail investors are becoming a critical growth engine for private credit—just as institutional flows plateau.
This Week’s Moves:
Blue Owl filed for a new alternative credit interval fund with quarterly liquidity.
Blackstone received SEC approval for its multi-asset private credit income fund (BMACX).
Lincoln Financial is launching two private markets funds in partnership with Bain and Partners Group.
Why It Matters:
Interval fund AUM has grown from $25 billion to $85 billion in four years.
Distribution infrastructure is now the competitive edge, with insurers and wirehouses entering the game alongside asset managers.
Brazil’s Private Credit Boom Turns to Securitization
Itau Asset Management is launching a new FIDC fund to meet demand from qualified investors.
FIDC Snapshot:
Brazilian securitization funds now see net inflows over 120 billion reais ($24 billion) annually.
Structured in tranches by risk level, FIDCs offer tax advantages and better liquidity.
Why It Matters:
Brazil is becoming a key frontier market for private credit innovation, with large firms like Itau and Patria investing heavily in structured products and SME credit.
Recent Deals
Kraken, the crypto exchange, is in talks to raise up to $1 billion in private debt ahead of an IPO.
Ares approached banks to purchase distressed debt tied to Hong Kong developer New World.
Blue Owl agreed to fund $5 billion of personal loans made by SoFi.
Shapoorji Pallonji Group secured $3.3 billion in private credit, potentially India’s largest-ever such deal.
Greenko Energy founders are raising $800 million via private debt for a strategic stake buy.
Macquarie launched a direct lending platform in Europe, with U.S. launch expected mid-2025.
Forward Outlook
Valuation Pressure Is Building
With defaults rising, PIK usage surging, and spreads compressing, questions around true portfolio health are intensifying.
Restructuring Talent Becomes Essential
Firms like Antares and Golub are staffing up distressed debt teams, anticipating more distress-for-control and liability management exercises.
Retail Is Now a Permanent Capital Source
The interval fund boom is reshaping distribution, and the push is no longer optional for growth-hungry credit platforms.
The Margin War Is On
Private lenders are trading structure for volume, but how far they’ll go to win deals remains an open—and risky—question.
Securitization Is Back in Focus
With liquidity concerns and tax efficiency top of mind, expect more securitized products globally—not just in Brazil.
Final Takeaway
Private credit is entering a more competitive, more fragile phase. Defaults are ticking up, spreads are compressing, and regulators are looking closer. Meanwhile, retail capital is surging in, and dealmakers are increasingly pushing structural limits to stay active.
The next leg of the private credit cycle will test whether the asset class can balance growth with discipline—and whether it can deliver on its promise in a riskier, more transparent world.
Stay tuned with Private Debt News Weekly—your source for the data, deals, and dynamics defining the future of private credit.