Private Debt News Weekly Issue #65: Secondaries Surge, Regulatory Ghosts, and Boozy Collateral

Continuation funds hit record volumes while UK regulators warn of 2008 parallels

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Private credit is experiencing a secondaries boom as funds seek liquidity solutions for aging portfolios. Coller Capital and Benefit Street Partners closed a $2.3 billion continuation fund to extend holdings from a 2017 vintage vehicle, reflecting the industry’s struggle with slow M&A activity and delayed exits. Private credit secondaries are now the fastest-growing segment in a market that hit $103 billion in H1 2025.

UK regulators are raising alarms about banks’ push into private credit, citing parallels to 2008’s CDO crisis. HSBC injected $4 billion into its private credit platform with ambitions to reach $50 billion within five years, while the Bank of England warns that “interconnectedness between banks and these funds could amplify shocks.”

Meanwhile, Brazilian firm Solis is capitalizing on 15% interest rates to grow assets by 50% annually through FIDCs, and private lenders are discovering new collateral in aging whiskey barrels and wine collections. PIK usage surged to 11.4%, the highest in four years, with loan-to-value ratios for distressed borrowers jumping from 45% at origination to 83%.

The industry is simultaneously expanding into exotic sectors while confronting fundamental stress signals and regulatory scrutiny.

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Key Market Themes

1. Continuation Funds Address Liquidity Crisis

Coller Capital led a $2.3 billion continuation fund for Benefit Street Partners to extend holdings from Debt Fund IV, which closed with $2.55 billion in 2017. The vehicle acquired senior-secured floating-rate loans largely composed of first-lien middle-market credits as the original fund faced slow exit conditions.

Blair Faulstich, Benefit Street’s head of US private debt, noted that “the wind-down of private debt vehicles has been slower than historical wind-downs” due to “relatively benign M&A markets.” Private credit secondaries represent the fastest-growing segment in a market reaching record $103 billion volumes.

Ed Goldstein of Coller Credit Secondaries emphasized the deal was “about continuing to hold quality assets” rather than stress-driven platform preservation, though industry observers note the trend reflects broader liquidity pressures across aging fund vintages.

Bottom Line

Continuation funds provide temporary liquidity solutions but don’t address underlying market conditions preventing natural exits. The trend indicates systemic maturity challenges as private credit funds struggle with deployment timelines longer than historical norms.

2. UK Regulators Invoke 2008 Warning Signals

UK banks are aggressively expanding into private credit despite regulatory concerns about transparency and interconnectedness risks. HSBC’s Georges Elhedery steered $4 billion into private credit with plans to scale the platform to $50 billion over five years, while Barclays partnered with AGL Credit Management and Natwest deployed Coutts for high-net-worth private credit offerings.

Simon Hart of RPC warned that private credit is “more opaque than vanilla bank lending” and noted parallels to CDO structures that contributed to the 2008 crisis. The Bank of England expressed concerns about “emerging complex structures” and potential for “amplified shocks in the financial system.”

Michael Barnett of Quillon Law cautioned that “spiraling investment” into “complex, risk-driven and under-regulated industry” could lead to “value crashing” if structures unravel and investors “rush for exits.”

Regulatory Reality

Bank expansion into private credit recreates the opacity and interconnectedness that characterized pre-2008 structured products. Regulators face pressure to “get ahead of the industry” without “choking genuine demand,” but historical precedent suggests reactive rather than preventive oversight.

3. Brazilian High-Rate Environment Fuels Credit Boom

Solis Investimentos grew assets by nearly 25% in H1 2025 to 26 billion reais ($4.8 billion) and projects 50% annual growth driven by 15% benchmark interest rates. The firm hired 12 people this year with plans for eight more by year-end, focusing on FIDCs that bundle debt into risk-tranched securities.

FIDC issuances hit record 40.7 billion reais in H1 with average deal sizes of just 81.5 million reais, serving smaller companies overlooked by big banks. Net inflows reached 2.7 billion reais in July while stocks, ETFs, and hedge funds each had outflows exceeding 1 billion reais.

Ricardo Binelli of Solis noted “significant shift from bank credit to FIDCs” as a permanent structural change rather than temporary opportunity. However, non-performing loans rose across all segments in July, with agricultural sector bad loans jumping 90 basis points.

Market Context

High interest rates create favorable conditions for private credit but also increase default risks across borrower segments. FIDC growth reflects bank retreat from lending rather than sustainable market expansion, potentially creating concentration risks as economic conditions normalize.

4. Alcohol Industry Becomes Collateral Playground

Private credit firms are lending against aging whiskey barrels, vineyards, and wine collections as alcohol businesses seek financing amid declining consumption and tariff pressures. Wells Fargo and Centerbridge Partners provided loans to Hand Family Cos. and Southern Crown Partners, while Ares-backed Cooper’s Hawk explored private credit refinancing.

InvestBev Group provided $50 million to contract distiller Lofted Custom Spirits backed by aging barrel inventory that appreciates over time. PGIM’s Matthew Harvey noted deals range from “largest wineries to higher-end single labels” with various collateral structures.

Brian Rosen of InvestBev cited potential 30% returns on alcohol-related deals due to specialization requirements, though recent bankruptcies including Uncle Nearest, Luca Mariano Distillery, and Stoli Group USA highlight sector risks.

Investment Implications

Alcohol financing offers specialized opportunities with unique collateral characteristics but requires industry expertise for liquidation scenarios. Declining consumption trends and tariff impacts create headwinds that traditional credit metrics may not fully capture.

5. European Unitranche Activity Shows Regional Strength

European unitranche loan volume increased 13% year-over-year to 250 deals in H1 2025, with Q2 showing 12% quarter-over-quarter growth to 132 transactions, according to Houlihan Lokey. UK and France led with 33% and 63% quarterly increases respectively, while Germany and Benelux underperformed.

Italy showed significant acceleration with 12 deals in H1 2025 compared to 14 for all of 2024. Add-on acquisitions represented 37% of Q2 activity as sponsors pursued buy-and-build strategies, while debt pricing showed all-in yields of 9.94%, down from 10.17% in Q1.

European private credit yields now trade 353 basis points higher than the European Leveraged Loan Index, demonstrating pricing power relative to traditional syndicated markets.

Regional Dynamics

European market resilience contrasts with US deployment challenges, suggesting geographic diversification benefits for global private credit strategies. Yield compression indicates increasing competition but spread premiums remain attractive relative to public alternatives.

6. Music Rights Financing Reaches New Scale

The Weeknd is in discussions to raise $1 billion backed by music publishing rights and master recordings through Lyric Capital Group, potentially marking the largest music rights deal for a living artist. The structure would use publishing rights as collateral along with recorded music ownership stakes.

Hipgnosis Song Management previously sold $1.47 billion in bonds backed by royalties from Shakira, Journey, Red Hot Chili Peppers, and 50 Cent, while Sony acquired 50% of Michael Jackson’s catalog for $600 million. Justin Bieber’s catalog was acquired by Blackstone-backed Hipgnosis in 2023.

The Weeknd’s 110 million monthly Spotify listeners provide substantial cash flow predictability, though music rights valuations depend on sustained streaming revenue and catalog longevity assumptions.

Asset Innovation

Music rights financing demonstrates private credit’s expansion into alternative asset classes with predictable cash flows. Intellectual property collateral offers diversification benefits but requires specialized valuation expertise and technology platform risk assessment.

7. PIK Usage Hits Four-Year Peak Amid Stress Signals

Payment-in-kind arrangements reached 11.4% of private credit investments in Q2, the highest since Lincoln International began tracking in 2021. Half qualifies as “bad PIK” representing borrowers who started deferring payments during loan life rather than at origination.

Loan-to-value ratios for companies using bad PIK averaged 83% versus 45% at origination, representing what Lincoln called “clear signs of stress.” The firm’s official default rate rose to 3.4% while the “shadow default rate” based on bad PIK reached 6% compared to 2% in 2021.

Private equity sponsor relationships show “cracks forming” as funds face capital unavailability or concern around investing further in troubled portfolio companies, according to Lincoln’s analysis of 6,250 portfolio valuations.

Credit Warning

PIK acceleration indicates fundamental cash flow deterioration across private credit portfolios, with payment deferrals masking underlying credit quality decline. Amendment activity may be “disguising” actual default rates as lenders avoid triggering formal default events.

Deals of Note

• Coller/Benefit Street — $2.3B continuation fund extending 2017 vintage loan portfolio

• Thoma Bravo/Verint — $2.7B bank debt led by Santander for software acquisition

• Blue Owl/Kroll — $3.3B refinancing package at 7.5x leverage with PIK component

• The Weeknd — $1B music rights financing backed by publishing and master recordings

• InvestBev/Lofted — $50M distillery financing backed by aging whiskey barrel inventory

Forward Outlook

• Continuation funds proliferate as aging vintages face extended hold periods

• UK regulatory scrutiny intensifies over bank private credit expansion

• Alcohol sector financing expands despite consumption headwinds

• European unitranche markets outperform US deployment metrics

• Music rights establish as scalable private credit asset class

• PIK usage acceleration signals broader borrower stress patterns

Final Takeaway

Private credit is simultaneously innovating and deteriorating. Coller’s $2.3 billion continuation fund and The Weeknd’s $1 billion music rights deal showcase the industry’s financial engineering capabilities, while PIK usage at 11.4% and “shadow default rates” of 6% reveal underlying portfolio stress.

UK regulators invoking 2008 parallels while banks inject $4 billion into private credit platforms demonstrates the tension between growth ambitions and systemic risk concerns. Brazilian Solis’s 50% growth amid 15% interest rates shows how macroeconomic conditions can create temporary opportunities that may not sustain.

The industry’s expansion into aging whiskey barrels and wine collections reflects both creativity and desperation as traditional middle-market opportunities become scarce or overpriced. European unitranche growth of 13% contrasts with US deployment challenges, suggesting geographic arbitrage opportunities remain available.

Lincoln International’s analysis of 6,250 portfolio valuations provides the most comprehensive view of private credit stress, with loan-to-value ratios deteriorating from 45% to 83% for troubled credits. Amendment activity disguising defaults and “cracks forming” between sponsors and lenders indicate relationship strain beneath surface stability.

Private credit’s maturation requires balancing innovation with discipline, but continuation funds, exotic collateral, and payment deferrals suggest the industry is choosing growth over quality. Success will depend on whether specialized expertise in music rights, alcohol assets, and geographic markets can generate sustainable returns or merely delay recognition of fundamental overcapacity.