Clément Couloumy clement@altrium.co.uk
Private credit has moved from niche strategy to a central pillar of global financing in barely a decade. Today the asset class funds everything from mid-market buyouts and sponsor-backed acquisitions to asset-based lending, NAV financing and complex special situations. As balance sheets have shifted from regulated banks to private funds and platforms, scrutiny of the sector has intensified.
Recent events in the United States have brought renewed attention to the mechanics and transparency of the market. The restructuring of First Brands Group, a large borrower backed by private credit lenders, and the difficulties faced by Tricolor, a lender to subprime auto borrowers that relied heavily on private credit financing, have highlighted how complex capital structures and lender coordination can be tested when credit conditions tighten. At the same time, developments involving Blue Owl and Ares’s credit platform, where investor redemption pressure raised questions around liquidity management in semi-liquid vehicles, have focused attention on the interaction between private assets and investor liquidity expectations. In the UK, questions raised following the situation surrounding MFS have reinforced a broader debate.
The concern for policymakers, financing banks and institutional investors is not that private credit is inherently unstable. Rather, the market’s rapid growth has occurred largely outside the transparency mechanisms that characterise public credit markets. Jamie Dimon recently captured this sentiment bluntly, warning that financial markets often discover risks only when stress reveals where the “cockroaches” are hiding.
In private credit, those “cockroaches”, if they exist, are unlikely to be exotic financial engineering. They are more likely to emerge from information asymmetry.
Where opacity lives in the private credit ecosystem
The private credit market is built on privately negotiated documentation and bespoke structures. While this flexibility has been central to the asset class’s success, it also means that risk is not always visible from headline metrics.
Documentation complexity.
Unitranche facilities, first-out/last-out structures, second lien tranches, holdco financing and PIK instruments are now common tools in private credit transactions. Yet the real risk in these structures often lies not in headline leverage multiples but in the underlying legal architecture: EBITDA definitions, add-backs, covenant cushions, cure mechanics and subordination dynamics. Two loans with identical leverage levels may behave very differently in stress depending on these terms.
Valuation practices.
Most private credit assets fall into Level 3 accounting categories and rely on internal valuation models. Although valuation frameworks have matured significantly, the absence of observable market pricing means assumptions can vary across managers and administrators. Differences in discount rates, comparables or treatment of covenant breaches can materially influence reported asset values.
Liquidity layering.
Another area attracting scrutiny is liquidity transformation. Semi-liquid vehicles, NAV financing facilities and subscription lines introduce additional leverage and layered claims on the same collateral pools. Each instrument is well understood individually, but together they create a more complex liability structure that may not always be fully visible to end-investors.
Early warning signals
Recent commentary from senior banking executives has reinforced the idea that opacity in private credit may only become visible in periods of stress. Dimon’s “cockroach” remark was less a prediction of systemic failure than a reminder that risk tends to surface when liquidity tightens and performance deteriorates.
The First Brands restructuring illustrates this dynamic. The borrower’s capital structure required coordination among multiple creditor groups and documentation layers to stabilise the situation. The instruments themselves were not unusual; what mattered was how contractual rights and creditor alignment played out once performance weakened.
Similarly, the Tricolor situation highlighted how specialised lending strategies can become sensitive to macroeconomic shifts. The case drew attention to valuation assumptions and the importance of transparency when credit conditions deteriorate.
At the fund level, the Blue Owl liquidity episode or the similar withdrawals limits imposed by Ares raised a different issue: the challenge of aligning investor liquidity with inherently illiquid credit assets. The High-Net-Worth Individuals and more retail investor classes present in Evergreen funds might have different investment horizon than traditional Institutionals, especially in time of stress. Redemption pressure in semi-liquid vehicles prompted renewed discussion around portfolio construction, liquidity terms and financing structures.
Meanwhile in the UK, the MFS episode has prompted questions about governance, valuation oversight and investor reporting. Similarly to First Brands, the double-pledging of collateral signals a need for better risk control.
These developments do not point to systemic fragility in the sector. They do, however, highlight a familiar dynamic in fast-growing markets: transparency infrastructure often lags market expansion.
The importance of market infrastructure
Unlike public bond or syndicated loan markets, private credit does not benefit from exchanges, centralised reporting or widely observable price discovery. As a result, transaction infrastructure becomes a primary channel through which transparency is created.
Facility agents, security agents, paying agents and borrowing-base calculation agents operate at the intersection of sponsors, lenders, noteholders and service providers. When structured effectively, these roles allow legal and financial information to be captured, standardised and monitored throughout the life cycle of a financing.
Tracking covenants, baskets, cure mechanics, intercreditor provisions and security packages provides a reliable baseline for decision-grade reporting. Equally important is event-driven monitoring. Amendments, waivers, covenant resets, incremental debt and collateral changes can alter the risk profile of a facility long before performance deteriorates. Robust data models and workflow tools that mirror the actual life cycle of a loan or note make it possible to move from static PDFs to structured, analysable datasets.
In this context, transaction services providers increasingly act not merely as administrators but as custodians of market transparency.
A crucial difference from 2007
Despite comparisons with earlier credit cycles, one structural difference from the pre-2008 environment is fundamental. During the financial crisis, risk was concentrated on bank balance sheets made of retail savings, creating systemic fragility when losses emerged.
In private credit today, the capital base is fundamentally different. The majority of funding comes from long-term institutional investors such as pension funds, insurance companies, sovereign wealth funds and endowments. These investors allocate capital across diversified portfolios and investment horizons measured in years rather than quarters. Still, these vehicles are levered. The systemic risk argument of NAV financing that does use most of the time traditional bank balance sheets comes into play.
Losses will inevitably occur in any credit cycle. The key distinction today is that they are absorbed within a diversified institutional investor base rather than concentrated within the core banking system.
Transparency as the market’s resilience mechanism
Private credit will eventually face its first global downturn as a mature asset class. When that moment arrives, the market’s resilience will depend less on whether losses occur and more on whether participants trust the information they receive about those losses.
History shows that credit markets rarely unravel because of losses alone. They unravel when participants lose confidence in valuations, documentation or the operational infrastructure that connects them.
Strengthening that infrastructure therefore becomes essential. Embedding transparency, legal, operational and data-driven, into the architecture of private credit does more than improve reporting. It reinforces the foundations of the market itself.
When stress eventually arrives, the difference between panic and orderly restructuring will depend on whether decisions are guided by reliable information rather than uncertainty.