Private Debt News Weekly Issue #54: Gundlach’s Warning, Private Credit’s Retail Creep, and the Return of Second-Lien Sizzle
The Bond King says it’s a bubble, cooperation agreements may be illegal, and private credit is propping up private equity’s pause
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Welcome back to Private Debt News Weekly, where the public narrative is bullish, but the private worries are growing louder.
This week, private credit found itself under fire—from inside and out. At Bloomberg’s Global Credit Forum in LA, DoubleLine’s Jeffrey Gundlach pulled no punches, comparing today’s private credit frenzy to the pre-GFC CDO bubble. His critique? Overinvestment, fake stability, and illiquidity that’ll bite when the exits close.
Meanwhile, managers are increasingly stuffing private equity’s backlog with “dequity” hybrids—half-debt, half-equity solutions meant to delay markdowns and buy time. The push into retail money continues, but not without risk. Moody’s warned this week that the surge in evergreen vehicles could undermine underwriting discipline and strain liquidity during market stress.
And in a curious twist, creditor cooperation agreements—long a favored tool in liability management showdowns—are now under legal fire, with some restructuring lawyers warning they may violate antitrust law.
Here’s what mattered this week.
Key Market Themes
1. Gundlach Says: This Is a CDO Rerun
At the Global Credit Forum, DoubleLine CEO Jeffrey Gundlach said the quiet part out loud: private credit today looks like the CDO market in 2006. The Bond King took aim at key talking points: illusory stability from lack of marks, unsustainable issuance levels, and overconcentration of capital in illiquid structures.
He warned that some large allocators—especially endowments—may be forced sellers in a downturn, triggering markdowns that have been hidden by “mark-to-model” accounting.
Why It Matters:
The cracks are becoming harder to dismiss. Gundlach isn’t alone—MSCI reported this week that private credit funds underperformed both leveraged loans and junk bonds in 2023. If public outperformance continues, LP patience may not.
2. Private Credit Is Quietly Propping Up PE
Private credit firms have deployed over $30 billion in “dequity” financing since 2023—structured as junior debt or preferred equity—to help PE firms return capital in a no-exit market. These loans buy time: no full sale, but enough cash to pay LPs.
Recent deals include:
$525M for Consumer Cellular to pay a dividend to GTCR
$2.1B for Acrisure, via preferred stock led by Bain
Adevinta, backed by Blackstone and Permira, is next in line
These hybrid instruments often rank behind traditional debt and sit closer to equity—making them more expensive and riskier for lenders.
Key Dynamic:
Dequity lets sponsors avoid writing down old vintages. But it’s also a warning sign: if companies can’t be sold, and can’t be refinanced, private credit becomes the buyer of last resort. Not a healthy long-term trend.
3. Moody’s Rings the Bell on Retail Risk
Moody’s issued a pointed note this week warning that the retailization of private credit is creating systemic vulnerabilities. Evergreen and semi-liquid funds must deploy fast to avoid drag—but that creates pressure to loosen standards and stretch for yield.
Moody’s flagged:
compressed spreads
relaxed underwriting
asset mismatch in drawdown vehicles
redemptions pressure during volatility
They also pointed out that retail funds may inherit hard-to-sell assets PE firms want to offload, creating a quiet secondaries market for junk.
What to Watch:
If retail inflows turn to outflows, we’ll find out quickly whether these “low-volatility” funds are built for stress. Spoiler: many aren’t.
4. Second-Lien Loans Make a Comeback
Wall Street banks are ramping up issuance of second-lien loans, once the sole domain of direct lenders. Demand from private credit and CLOs is up, and banks are taking advantage—selling second-liens to free up balance sheet, earn fees, and lower borrower costs.
Recent deals:
$1B for Alera (BMO-led)
$1.2B for Proofpoint (GS-led)
$925M for Kaseya (MS-led)
$300M for OSTTRA (KKR-led)
Even as they price just ~200 bps wide of first-lien paper, the demand is real.
Signal to Watch:
Private credit is buying into public processes to stay exposed to borrowers they already know. But these second-liens are still junk—and in a downturn, they’re the first to get hit.
5. Creditor Pacts Face Antitrust Scrutiny
At the same LA forum, Kirkland & Ellis partner David Nemecek dropped a bomb: cooperation agreements—where creditors band together to negotiate restructurings—may be “on their face anticompetitive.” He suggested the pacts could violate U.S. antitrust law.
That’s a sharp reversal from the current market norm, where co-ops have become a key defense tool for minority lenders navigating aggressive sponsor maneuvers.
Other lawyers pushed back, but the idea is out there—and litigation risk is now on the table.
Why It Matters:
If creditor pacts are challenged legally, expect a chilling effect on clubbing behavior. That would leave individual lenders more vulnerable—and give sponsors more leverage in out-of-court workouts.
6. AI Shocks Move From Hype to Headwind
The AI buildout has created tailwinds for data center financings, but now private credit managers are warning about surprise exposure on the other side—legacy tech borrowers who may get outcompeted.
Pretium and HPS both flagged concerns this week about “hidden liabilities” from tech disruption. As companies cut costs, reinvestment in IT often gets delayed—making them more vulnerable.
Takeaway:
AI is no longer a tech-sector-only conversation. Every credit underwrite now includes an obsolescence risk. Expect tighter covenants in tech and more scrutiny on capex budgets.
Deals of Note
$190M: Cipriani taps Beach Point and Sparta Capital to fund global resort expansion6.14.25
$1.5B: Blackstone backs Baker Tilly–Moss Adams merger
$548M: Blue Owl leads second-lien portion of Trucordia refi
$1.9B: JPMorgan leads first-lien tranche of Trucordia refinancing
$5B: JPMorgan mulls significant risk transfer tied to high-yield loans
Forward Outlook
Retail is where cracks will show first. If redemptions spike, expect gates and markdowns.
PE portfolios are not selling. That keeps dequity alive—but delays real price discovery.
Legal pressure on creditor pacts will reshape LME negotiations. Minority lenders may lose a key tool.
Second-lien paper will stay hot—until it doesn’t. Watch CLO demand and sponsor behavior closely.
AI underwriting is now a mainstream credit topic. Disruption risk isn't abstract anymore.
Final Takeaway
Private credit is evolving—but the speed and scale of that evolution are creating stress in the system.
From dequity and second-liens to retail vehicles and co-op pacts, the tools being used to prop up returns are starting to look a lot like the tools that crack under pressure.
It’s not time to panic. But it is time to read the docs.
Stay sharp.
I cannot recall a time that G has been right about any of his dramatic , the end of the bubble calls? Can someone else recall the last time his fatalistic forecasts materialized. All the concerns expressed here are too broad and vague to assess their credibility. It would help to cite deep facts and research to support all the negativity .