Authored by Ed Dowd via Beyond the Narrative,
Private Credit: The New Junk Bond Market...Except It Lacks Transparency, Liquidity & Is About To Be Stress Tested
History
Private credit was born from the ashes of the Great Financial Crisis. In the aftermath of that debacle, regulators moved to limit the risks banks could take. Loans deemed too risky were no longer being originated by commercial banks. To fill that void, non-bank lenders stepped in, creating what is known as private debt or direct lending market. You may know these vehicles as Private credit funds, also referred to as business development companies (BDCs). These funds raised capital from pensions, endowments, insurance companies, and wealthy individuals.
Unlike junk bonds or corporate bonds, these loans are not publicly traded and are typically held to maturity. In fact Private credit has quietly taken a big chunk of market share from the traditional junk bond market. These private deals give borrowers speed, confidentiality, and customized terms they can't always get from public bonds, while investors get higher yields and perceived lower volatility. The public junk bond market has actually improved in average credit quality as the riskier companies moved into these opaque structures.
The funds have traditionally targeted middle-market companies with revenues between $10 million and $1 billion, though the strategy has recently expanded to larger firms and bigger deals, including those in AI. Last November Morgan S
