The shadowy corner of Wall Street known as private credit just can’t seem to stay out of the headlines—or the bankruptcy filings. A string of sudden collapses among companies backed by this booming nonbank lending world has sent jitters through the financial system, prompting big names like Jamie Dimon to invoke the classic “one cockroach” theory and Jeffrey Gundlach to declare the sector full of “garbage loans.”
Welcome to the opaque, fast-growing realm where loans are made in private, valued in private, and sometimes—surprise—go spectacularly sour in private.
Investors in firms heavily tied to private credit, from Blue Owl Capital to giants like Blackstone and KKR, are still nursing portfolios trading noticeably below their recent peaks. It’s the financial equivalent of discovering your “sure thing” investment has a hidden expiration date.
Meanwhile, pension funds and insurers pouring money into these long-term loans for those juicy returns might start wondering if the yield comes with a side of silent suspense.
Private credit, or direct lending if you prefer the polite term, has ballooned as banks stepped back after the 2008 crisis regulations made riskier borrowers feel like unwelcome guests. What started as a niche has swollen dramatically—think around $3.4 trillion in 2025, with projections eyeing nearly $5 trillion by 2029. That’s a lot of handshakes and spreadsheets happening away from prying public eyes.
Then came fall’s plot developments. Auto-industry players Tricolor and First Brands filed for bankruptcy in September, sending ripples that even touched some big banks’ balance sheets. Not to be outdone, home improvement firm Renovo joined the party in November, with lenders like BlackRock marking debt at a pristine 100 cents on the dollar right up until—poof—it dropped to zero. Nothing says “trust me” like a last-minute valuation haircut that could double as a barber’s revenge.
Wall Street’s heavy hitters have taken notice. JPMorgan’s Jamie Dimon, never one to mince words, reminded everyone in October that credit trouble rarely arrives alone. Billionaire bond king Jeffrey Gundlach piled on, branding much of the lending “garbage” and forecasting the next crisis might sprout from this very patch. Moody’s Analytics chief economist Mark Zandi called it lightly regulated, less transparent, and growing really fast—the perfect cocktail ingredients for future headaches, even if no one is panicking yet.
Boosters counter that private credit fills a vital gap, funding businesses banks now avoid and delivering solid returns to patient investors like pensions with long horizons. After all, who’s better suited for multiyear loans than capital that doesn’t bolt at the first sign of trouble? Yet the catch remains: the same managers making the loans also get to mark their own homework. Incentives to spot problems early? Strong. Incentives to hope for a miracle and keep valuations rosy a bit longer? Equally persuasive.
Defaults are creeping higher, especially among shakier borrowers, and more companies are leaning on payment-in-kind tricks to kick the can down the road. Banks, meanwhile, are ironically bankrolling part of the boom—lending to these nonbank lenders hit $1.14 trillion last year, with JPMorgan’s exposure alone tripling in recent years. Deregulation could bring banks roaring back into the fray, potentially sparking a lending arms race where underwriting standards quietly take a vacation.
No one is calling for an imminent meltdown. But as this corner of finance grows ever larger and more entwined with the system, the big question lingers: When trouble brews in the shadows, will anyone spot the smoke before the whole room fills up?
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