Private Credit: A Gathering Storm

The private credit game. Two trillion bucks in 2020. Now? They’re talking five by 2029. Sounds like a sure thing, doesn’t it? Except the scent of trouble’s been hanging in the air, thick enough to choke on. These projections assume the bottom doesn’t fall out. A dangerous assumption in this business.

Gundlach, the Bond King, called some of these loans “garbage.” Garbage. He’s seen a few cycles. Dimon, over at Goldman, figured the lending standards were getting soft. Lenient. Like a bartender giving away free drinks. He expects issues if things turn south. And they always do, eventually.

Wall Street’s humming a warning tune. These Business Development Companies, these BDCs, have been riding the wave of private credit. Should investors be sweating? Some should be. Most probably aren’t paying close enough attention.

Cracks in the Pavement

Prospect Capital. A name that sounds… optimistic. They’ve had the same crew at the helm for 26 years. Longevity doesn’t always equal competence. The stock trades at a discount. A steep one. They’re offering a yield of nearly 20%. Sounds good, right? It’s a trap. A shiny, gilded trap.

Their Net Asset Value is eroding. Like a coastline under a relentless tide. They’re propping themselves up with perpetual preferred stock. More fixed payments. Less dependable dividends. It’s a house of cards built on borrowed time.

FS KKR Capital. Another one showing its age. A yield over 20%. Non-accruals are creeping up. Five percent of their portfolio. Fitch lowered their outlook. “Persistently elevated non-accruals.” That’s Wall Street speak for “trouble.”

Not All Ships Sink

Ares Capital. Now there’s a name that feels… solid. They’re doing something right. First-lien secured loans. 61% of their portfolio. That puts them at the front of the line when the music stops. They’re not chasing yield; they’re managing risk. A novel concept.

Diversification. 587 companies. 35 industries. Their biggest investment? Two percent of the portfolio. The top ten? Just over 11%. Compare that to their peers, averaging 25%. They’re not putting all their eggs in one basket. They’ve learned from history.

Loss rates are lower than the industry average. Non-accruals at cost? 1.8%. Their historical average since 2008? 2.8%. They’re not just lucky. They’re good. A 9.5% yield. Secure. And they have enough spillover income to cover dividends for over two quarters. That’s breathing room.

A Cautious Outlook

Morgan Stanley thinks things will be okay. Declining interest expense, rising EBITDA. They’re looking at the numbers. But numbers can lie. Or at least tell a very incomplete story. Barring a shock, they say. There’s always a shock. Always.

Caution is warranted. Research. Due diligence. These aren’t optional extras. They’re the price of admission. Opportunities remain. But they’re not handing out money on the street. Ares Capital. That’s a textbook example. A solid ship in a gathering storm.

2026-02-02 12:54

Cracks in the Pavement

Not All Ships Sink

A Cautious Outlook

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