Private Debt News Weekly Issue #55: Insurance-Fueled Euphoria, Dequity Creep, and the Foreign Exit
Private credit powers on—with cheaper funding, overseas capital flight, and rising structural risk in plain sight
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Welcome back to Private Debt News Weekly, where optimism, liquidity, and concern continue to build in equal measure.
This week, insurance capital once again took center stage, with new data showing a third of U.S. life insurer assets are now tied to private credit. That includes everything from investment-grade real estate loans to esoteric buy-now-pay-later ABS deals. The pitch: high yield, long duration, stable matching. The risk: opacity, concentration, and illiquidity.
Meanwhile, foreign investors are backing away from U.S. funds as the threat of Trump’s Section 899 “revenge tax” makes Europe look a lot safer. New capital is flowing into Singapore data centers and European infra loans. U.S. GPs are scrambling to fill the gap.
And quietly but surely, dequity deals—those hybrid capital injections designed to patch up broken PE timelines—are expanding. As cash-out pressure mounts, private credit is being asked to fill not just a funding gap, but an exit gap.
The contradictions are building. Let’s get into it.
Key Market Themes
1. Insurance Capital Now Anchors the Asset Class
A full one-third of U.S. life insurers’ $6 trillion in assets are now allocated to some form of private credit. The trend is accelerating in Europe, where private credit has grown 30% over the past five years.
Insurers love private credit’s yield, duration, and flexibility. But they’re accepting significantly reduced transparency, liquidity, and valuation precision in exchange. Moody’s flagged concerns over single-name exposures and uneven underwriting discipline.
Why It Matters:
Insurance-backed capital has become the quiet majority of the private credit market. If defaults rise, insurers may not panic—but regulators might. The trade works… until it doesn’t.
2. International LPs Start to Walk
Trump’s Section 899 tax proposal—which could push foreign investors’ tax rates to 50%—is already chilling fundraising from Europe and Asia. Investors are stalling commitments and reallocating to Europe.
The U.S. private markets pitch used to be simple: big, safe, liquid. Now it’s: big, controversial, taxed. Capital is already rerouting.
Takeaway:
Private equity may be more exposed, but private credit is next. Foreign sovereigns and pensions have historically been core LPs in U.S. credit funds. If the tax threat holds, expect allocations to shift away from the U.S. at scale.
3. The Dequity Era Expands
Dequity—convertible, preferred, and hybrid debt used to recap sponsors and buy time—is now a permanent fixture in the deal toolkit.
Structures like:
$1.2B preferred for Acrisure
$525M preferred for Consumer Cellular
$500M+ ABS from Affirm
all reflect a new reality: equity is frozen, and credit is being asked to bridge to an unknown exit.
What to Watch:
Sponsors love dequity because it delays markdowns. But when credit starts acting like equity and sits low in the stack, risk compounds. The line between lender and last-resort capital is disappearing.
4. Brookfield Bows Out
Brookfield’s insurance unit has pulled back sharply from private credit, citing excessive demand, compressed yields, and weak covenants.
“If everyone’s doing it, it’s probably overbid,” said CEO Sachin Shah.
This stands in contrast to Apollo, KKR, and Blackstone, all of whom are expanding. But it’s a clear signal from a major player: the trade isn’t working anymore.
Why It Matters:
Brookfield isn’t exiting because of defaults—it’s exiting because of math. Expect other CIOs to start modeling downside risk a little more aggressively.
5. Family Offices Shift from PE to Credit
BlackRock’s family office survey showed a clear turn: 39% of respondents plan to increase credit exposure, while private equity sentiment continues to fade.
The appeal is yield, diversification, and better liquidity control—especially for portfolios already overweight stale vintage equity.
The Turn:
Private credit is increasingly the favored way to allocate to private markets. But these LPs are sophisticated—and expect manager discipline, not just distribution access.
6. Silver Point’s Warning: It’s Not Built to Last
Silver Point’s Michael Gatto says the next cycle will expose weak lenders. Too many PIK-heavy portfolios. Too many lenders who don’t know what they own.
His warning: when the cycle turns, it’ll be game over for managers that traded diligence for deployment. If you’re not already triaging credits, you’re behind.
Key Insight:
This is no longer theoretical. The watchlists are already forming. The test isn’t whether defaults rise—it’s whether platforms are ready to absorb them.
Deals of Note
DayOne is seeking $1B+ in private credit to fund Asia data centers as AI demand accelerates.
Fortenova is refinancing €1.22B of HPS debt with bank loans at a 75% discount to the prior spread.
Affirm secured $500M from PGIM to support $3B of buy-now-pay-later originations.
Trucordia refinanced with a $1.9B first-lien from JPM and a $548M second-lien from Blue Owl.
HPS is raising $3B for its third senior lending fund targeting 7–9% net returns.
Forward Outlook
Insurance capital dominates—but its patience is untested.
Foreign capital is leaving. And it's not coming back until tax policy stabilizes.
Dequity will keep expanding until PE exits return. That could take quarters.
Retail flows are sticky—until they aren’t. If redemptions start, evergreen cracks will widen fast.
Manager separation is accelerating. Survivors will be those with performance, not just product.
Final Takeaway
Private credit’s rise continues—but it’s now powered more by momentum than conviction.
If foreign capital exits, insurance retrenches, or sponsors stop rolling debt, the system adjusts fast. The biggest risk now? Believing the system is still built for growth.
Stay sharp.