Private credit faces valuation trust breakdown
The bearish thesis argues that the private credit sector is entering a critical downturn where artificial asset valuations are losing credibility, threatening to trigger a funding and redemption crunch.
The argument
The host argued that recent events—including a DOJ probe into a BlackRock fund, Carlyle cutting its BDC dividend, and Blue Owl buying back shares—indicate that the 'mark-to-myth' valuation model is failing. As trust in these marks erodes, the sector faces risks of banks pulling back leverage, investors demanding redemptions, and insurance companies reassessing exposure.
The thesis, stress-tested
✓ What validates it
- ✓BDC market discounts to reported NAV continue to widen
- ✓An increase in payment-in-kind (PIK) interest toggles and nonaccruals
- ✓Banks raising collateral haircuts or reducing financing terms for private credit funds
- ✓Regulatory valuation probes expanding to other major asset managers
▸ Risks discussed
- ▸Many high-quality borrowers may continue to service their debt on time
- ▸BDC share buybacks may successfully support share prices and accretive NAV metrics
- ▸Macroeconomic stabilization or rate cuts could ease refinancing pressures for stressed borrowers
Hear it yourself
"justice department is now probing valuations at a BlackRock private credit fund, and that sentence should stop everyone cold. Not because BlackRock is gonna disappear. It's not. Or that a probe means that BlackRock has done something criminally wrong. That's not necessarily the case."
AFFILIATE LINK · ZORTIX MAY EARN A COMMISSION · NEVER A RECOMMENDATION TO TRADE