Private Credit, Wall Street’s Hottest Trade, Has an Ugly Moment

For years, as <-bsp-bb-link state="{"bbHref":"bbg://news/topics/DIRLEND","_id":"00000190-261b-d5f2-a594-f73fae5c0000","_type":"0000016b-944a-dc2b-ab6b-d57ba1cc0000"}">private credit exploded into a $1.7 trillion industry, the line from the market’s biggest players was that their deals were, simply put, safer.

Certainly safer than the high-yield bond market, and also safer than the leveraged loan market, where struggling companies could take advantage of weak investor safeguards and team up with hedge funds to <-bsp-bb-link state="{"bbDocId":"SBC0IGDWRGG0","_id":"00000190-261b-d5f2-a594-f73fae5c0003","_type":"0000016b-944a-dc2b-ab6b-d57ba1cc0000"}">aggressively restructure their debt at the expense of existing creditors.

That may still be the case. Deal documents are generally tighter in private credit; loans are financed by smaller “clubs” of lenders with deeper connections to companies and their private equity owners; ...