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Opinion Private credit
Private credit is too small to create a global financial crisis — but there are plenty of other storm clouds gathering
by John West & Amelia Weitzman
John West
Global commentary editor
Mergermarket
Amelia Weitzman
Reporter
Debtwire
Total bankruptcy filings have climbed every quarter since June 2022
You can imagine Michael Lewis licking his lips. All the ingredients for a bestseller are there, with Margot Robbie in the film adaptation explaining how the risk spread, while Ryan Gosling collapses CLO Jenga towers. ‘Contagion’ is again the watchword, with many market observers drawing parallels between the 2007-08 subprime crisis and private credit risk in 2025.
The collapse of vehicle parts manufacturer First Brands and subprime auto lender Tricolor Holdings has had a chilling impact on private credit markets, particularly around bank exposure and wider investor risk via CLO holdings. It has also raised questions about whether the rug will be pulled from other securitised products.
Any rerun of the kind of spillover we saw almost a generation ago would be bad news for US mid-market sponsors already finding it tough to execute exits, with read-across to high-yield issuance and inevitable downward pressure on already compressed multiples.
But those feverishly combing through private credit term sheets and bond prospectuses are putting the cart before the horse. What should be unnerving investors and dealmakers is not one fixed income asset class, but the fragility of corporate America outside the sugar rush of data centres and AI.
Concerns over direct lending have already raised eyebrows on both sides of the Atlantic. “Are we pricing risk properly in the private credit space?” asked BlackRock’s global head of structured products and derivatives Gauhar Turmuhambetova at a conference earlier this month. It’s the kind of question that feels all the more chilling for having to be asked.
Private credit, public panic
Bank of England governor and Global Financial Stability Board chair Andrew Bailey also weighed in last month, saying his hackles went up a few months back when private equity and private credit representatives told him there was nothing to worry about as non-bank lending gathered the momentum of a runaway train: “I said, we’re not playing that movie again, are we?”
While Gosling’s agent might need to wait a while before landing his next Jenga-based financial explainer, it’s undeniable that private credit’s growth has been extraordinary.
According to the Bank of International Settlements (BIS), US and European private credit issuance on a rolling 12-month basis jumped from approximately USD 360bn in early 2023 to USD 635bn by mid-2025. In the US, the asset class totalled USD 1.34tn by 2Q24, according to Federal Reserve research.
Yet total losses across US financial institutions during the global financial crisis were estimated to arrive at 13% (USD 1.6tn) of the USD 12.37tn on loans across many buckets of instruments and securitisations. This obviously dwarfs any of the numbers around private credit. It doesn’t stack up that sloppy due diligence, lack of transparency on loan terms, or substandard underwriting across the private credit industry could create a crunch on anything like the same scale as that seen in 2007-08.
Spreading the pain
Unfortunately, it doesn’t stack up that everything’s fine, either. First Brands and Tricolor both face accusations of fraud. But any attempt to class these as individual cases to be roped off from any wider narrative should be batted away.
When the tide goes out, those first found swimming naked often fall under suspicion of fraud. They’re usually followed by scrupulously honest corporations facing the same economic and financing pressures.
Back to the BIS. It notes US high yield defaults have climbed to 0.6% in 2025 from around 0.125% in 2022, even as relevant spreads have narrowed from around 400bps to closer to 200bps. The capital rotation into private credit certainly played its part in creating the landscape for that dynamic.
Yet since First Brands filed for Chapter 11 on 24 September, high yield spreads widened from 270bps to a high of 318bps on 10 October, before moderating.
If spreads do tack upward, as lenders seek to buffer themselves following some high-profile blow-ups, that will counteract the Fed’s modest rate cutting path, keeping up pressure on corporates — particularly consumer-facing businesses — already feeling the pinch of higher costs.
Just as federal government largesse in the wake of the COVID-19 pandemic took time to read through to prices, so too President Trump’s tariffs policy will juice inflation over the coming 12-18 months.
US business bankruptcy filings across all chapters in the year-to-end-June climbed 40% year-on-year in 2024 and 4.45% in 2025. Total filings across businesses and individuals have climbed every quarter since June 2022.
Mid-market sponsors are worried about business trading, consumer-exposed sectors in the US economy are reporting customer pain, and SaaS tech players are worried about AI eating their lunch. Meanwhile, AI itself faces questions over whether equity valuations and investment cycles are running too far ahead of the potential benefits.
While dealmakers enjoy executing M&As after the delays following the chaos of Liberation Day, the storm clouds are gathering for 2026 pipelines. Meanwhile, the Conference Board’s Expectations Index, which tracks consumers’ short-term economic outlook, fell again to 71.5 in October — well below the 80 that typically signals recession.
The result? Even as NVIDIA and the hyperscalers work to save headline GDP from stalling, under the hood, the economic engine is choking. It may not be private credit that kicks things off — but that sound you can hear is Hollywood A-listers brushing up their loan market jargon.
