Private credit faces rising redemptions and defaults
The bearish case argued for private credit is that rising redemption requests and credit downgrades will lead to a higher cost of capital and tighter lending standards.
The argument
The hosts highlighted that Apollo is capping its withdrawal rate at 5% despite receiving requests for 11%, and Moody's recently downgraded the FS KKR Capital Corp private credit fund to junk status. They argued that these emerging credit issues indicate a tightening of financial conditions and a shift in the wrong direction for the broader credit market.
The thesis, stress-tested
✓ What validates it
- ✓Further credit downgrades of major private credit funds by Moody's or S&P
- ✓An increase in default rates within the LSTA leveraged loan index
▸ Risks discussed
- ▸Rate cuts or easing financial conditions could mitigate the credit tightening
Hear it yourself
"Also, the Moody's downgrade of the FS KKR Capital Corp private credit fund to junk status, yes, I do believe some credit issues are surfacing, but will instead state here again the unhealthy relationship between private credit and some in retail with the differing time horizons and views on liquidity."
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