What is there to know about Private Credit?

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By Kwaku Asihene Dapaah, Lawyer at Ashong Benjamin and Associates ([email protected])

As sure as eggs is eggs, businesses of all sizes require different financing structures. Due to a myriad of reasons, banks may be unable to provide such capital or meet these needs.

In steps private credit.

There are a whole host of definitions for this somewhat new asset class. Below are a few, from the simple to the more complex.

Private credit is the name for a business loan provided by any lender that is not a bank or building society.[1][2] Private credit is where a non-bank lender provides loans to companies, typically to small and medium size enterprises that are non-investment grade.[3]

The term private credit generally refers to loans and other debt instruments that are negotiated directly between a borrower and a non-bank lender. Private debt instruments are not traded on public exchanges but rather are typically held to maturity by the lender.[4]

Private credit is non-bank lending typically to middle market companies which typically range in size from US$25 million to US$75 million in EBITDA.[5]

Private credit efers to the many types of privately negotiated loans between a borrower and a non-bank lender.[6]

Characteristics

At its core, private credit requires a corporate borrower and a non-bank creditor.

The interest rates are also usually floating. (The floating rate is determined by applying a margin above a market indicator rate like the Secured Overnight Financing Rate, the primary interest rate benchmark for US Dollar loans). All things being equal, in a rising interest rate environment, the interest payment will go up while in a falling rate environment it will go down).

Investors in private credit may often earn a higher yield than public fixed income because the loans themselves are not actively traded on public markets (making them less easy to convert to cash, which is a term known as ‘liquidity’). Deals are more customised than most bank loans. It is also referred to as private debt, direct lending or private lending. How did this asset class grow large enough to merit media commentary and regulatory concern?

Birth and growth

You may know it’s more famous twin, private equity (where firms raise capital from investors to buy, improve, and sell private companies for a profit. This is known as the ‘exit’ and there are multiple ways of exiting an investment which will be discussed below).

Private credit in its current form is relatively new although its roots are as old as lending itself.

Since the Global Financial Crisis (“GFC”) in 2008, middle-market corporate and mortgage borrowing have increasingly moved away from banks and overall, banks’ share of private lending in the U.S. economy fell from 60 percent in 1970 to 35 percent in 2024[7].

The graphic above further illustrates declines in private sector financing by banks.

It is sourced from the US Federal Reserve and the World Bank Group, as of December 31, 2023. Cited in https://privatewealth.brookfield.com/insight/asset-backed-finance-next-frontier-private-credit.

Post-2008 regulation demanded that banks hold more capital and this served as a barrier to riskier loans. The loans that finally got approved also relied on extensive forensic checks on borrowers, making lending more expensive and slower. This created a gap in the market that private credit was ready to fill.

Further, private credit firms benefited from super-low interest rates after the financial crisis that made it easy to borrow and deploy vast sums of money.

Non-bank lending used to be an after-thought, but it is now more prominent because businesses need dynamic financing and investors need higher yields (Unlike private credit firms, bank lenders are more likely to structure their loans on standard underwriting or banking models and less likely to issue private loans to companies with drastic revenue swings).

Seems like a match made in heaven.

Some private credit firms operate as Business Development Companies (BDCs). A BDC is a closed-end investment company, created through the Small Business Investment Incentive Act of 1980, to stimulate the flow of capital to small- and mid-sized private businesses. They are often publicly listed.

Across the Atlantic, in the United Kingdom, the British Business Bank noted in a 2020 report that “since the 2008 economic crisis, private credit is now a valuable source of finance for smaller businesses across the UK – with a combined total of £18.4 billion of lending in 2018 (£9 billion) and 2019 (£9.4 billion).”[8]

Estimates vary for private credit Assets Under Management (“AUM”), (the total market value of the assets that a financial institution or investment company manages on behalf of its clients).

Assets under management (“AUM”) will jump to US$3 trillion by 2028 according to Moody’s.[9] While private market data and insight firm, Preqin, estimates that the asset class is forecast to hit an all-time high of US$2.64 trillion in 2029[10]

The table below details prominent firms in this space[11]

FIRM
AUM (in USD Billions)
Apollo Global Management
480
Blackstone Inc
354.70
Ares Management Corp
335.30
Ares SSG
308.60
KKR & Co Inc
242
Guggenheim Funds Investment
Advisors LLC
198
Carlyle Group Inc
189.80
Neuberger Berman Group LLC
182
Oaktree Capital Management LP
129
Brookfield Asset Management Ltd
124

 

‘Dry powder’ is another crucial metric used in ranking these firms. It is not unique to private credit.

“In a broad financial context, ‘dry powder’ is a term derived from military history (referring to keeping gunpowder dry and ready for use) that signifies readily available cash reserves set aside for future deployment.

Within private equity, dry powder refers to the amount of capital committed by investors to a PE fund that the fund manager has not yet called for investment. It is essentially the deployable capital sitting on the sidelines, waiting for suitable investment opportunities to arise.”[12]

While third on the AUM table above, Ares Management Corp was actually first with its dry powder valued at US$39.90 billion.

Almost all the firms in the table above are also well-known private equity firms which begs the question why the pivot?

Reasons to pivot

Sometimes, the simplest reason is usually the most accurate and that is, they have the money. Flush with cash and confronted with the opportunity, it was a natural progression for private equity to get into the private credit space.

In no particular order, other reasons include:

A. Recent Exit Struggles

To understand exit struggles, exits themselves must be understood.

In the private equity lifecycle, the exit stage is when profits are realised. Institutional investors in private equity (these include pension funds, university endowments, life insurance companies and sovereign wealth funds) profit when the private equity funds they invest in, buy and then successfully sell companies for more than they paid.

An example of an exit strategy is when private equity-owned companies undergo an Initial Public Offering (IPO) where shares are sold on a stock market.

Another strategy is a trade sale where the private equity investor sells the portfolio company to another company, often within the same industry. The company looking to buy is typically looking to expand its market share or acquire new capabilities.[13]

An example of this is when KKR purchased the pharmaceutical group, Alliance Boots (a merger between Alliance Unichem and Boots) in 2007 for a little over £11 billion.[14] KKR then sold its stake in Alliance Boots to Walgreens (an American pharmacy store).

Secondary sales are another exit strategy but this time it involves selling the portfolio company to another private equity investor or financial investor.[15]

Other exit strategies exist, but the last one for purposes of this article is liquidation. This complex process involves selling off the company’s assets and returning proceeds to investors.

“Traditionally, PE funds have had a life span of 10 years, and have exited all of their investments by the tenth year after they are launched. In recent years, it has taken 12 to 15 years for many funds to sell all their companies and return the cash to investors.

Exits are the engine that drive fundraising, deal making, and returns to investors. Sales of portfolio companies provide investors with cash to meet their obligations, pension liabilities or student scholarships, for example.”[16]

B. A Combination Of Bank Hesitancy, Unwillingness and Regulatory Constraints

The following transactions highlight how private credit is stepping into traditional bank lending shoes.

1.Thoma Bravo and Boeing

In 2025, private equity firm Thoma Bravo sough to acquire Jeppesen, the digital aviation unit of Boeing, the US plane maker.

“A syndicate of 10 private lenders participated in up to US$4 billion of debt financing to support Thoma Bravo’s US$10.55 billion leveraged buyout of Boeing’s Jeppesen navigation unit and other subsidiaries… Apollo Global Management and Blackstone Credit each provided roughly US$1 billion to the debt package, said sources.

These lenders are by far the largest debt providers, they noted… Other participants included JPMorgan Private Credit, Golub Capital, KKR, Oak Hill Advisors, Ares, Blue Owl, PSP Investments and Thoma Bravo Credit Fund, sources noted.”[17]

Thoma Bravo noted it would finance it’s deal with more than US$6 billion of equity and about US$4 billion in a private loan led by Apollo Global Management. An article from Yahoo Finance characterised this deal as a crushing blow to Wall Street, highlighting how Thoma Bravo did not turn to Wall Street banks for help and that private capital is no longer just an alternative but rather becoming the primary route for mega deals.[18]

2.HPS and Bombardier

Private credit firm HPS together with Apollo and Ares led a US$1 billion loan to Canadian plane maker Bombardier during the pandemic. This was crucial money for Bombardier as it waited to close on a sale of its train-manufacturing business. The loan was secured by high-quality accounts receivables and inventory.

3.Apollo and KLM

Apollo has provided €2.5 billion of what it calls ‘High-Grade Capital Solutions’ across three transactions to Air FranceKLM in recent years.

Strategies

Common private credit strategies include:

Senior Direct Lending- Senior secured loans made directly to middle-market companies.

Junior Debt- Subordinated loans made directly to businesses which sit between senior debt and equity.

Mezzanine Debt- A type of junior debt that combines elements of both debt and equity with the expectation of higher returns than traditional senior debt holders.

Distressed Debt- Lending to borrowers that are insolvent or in distress.

Specialty Finance- Typically non-corporate lending that occurs outside of the traditional banking system; can include areas like equipment leasing, consumer finance, commercial real estate finance or asset-based finance[19]

Asset-based finance (ABF) also known as asset-backed finance, asset-based lending, and specialty finance, refers to private lending that occurs outside of traditional corporate and commercial real estate markets.

It helps finance the everyday activities of businesses and consumers, from mortgages to credit cards to public transportation…ABF loans are often secured by hard assets, such as a house or airplane, or financial collateral like business receivables and intellectual property rights.[20]

The image below depicts ABF and is sourced from KKR as of June 6, 2025. KKR estimates that the private global ABF market is over $6.1 trillion today. Cited in https://www.kkr.com/insights/asset-based-finance

The difference between direct lending and ABF is that, in direct lending, corporate borrowers receive loans directly from private credit firms who assess the company’s creditworthiness. Ultimately, the borrower’s ability to pay regular interest, plus the full principal at the end of the loan, is a function of the company’s future operating cash flows from selling goods and services.

In ABF, lenders do not focus on operating cash flows for loan repayments. Instead, the primary source of repayment is secured by hard assets or diversified pools of financial assets.

Concerns

According to investment firm Vanguard, even though private credit deals often include protections such as senior secured loans and floating interest rates, the borrowers involved are generally less creditworthy.

The most recent and notable concerns about private credit involves the collapse of two US businesses, the car parts supplier First Brands and the sub-prime auto lender Tricolor.

First Brands is an automotive specialty company that develops auto parts including brakes, wipers, filters, and lights, under well-known automotive brands.

In January 2026, a press release from the U.S. Attorney’s Office, Southern District of New York detailed the unsealing of an indictment charging executives of First Brands with various financial crimes.

“These executives allegedly inflated invoices, double- and triple- pledged collateral, and falsified financial statements to unlawfully trick lenders into giving them billions of dollars,” said FBI Assistant Director in Charge James C. Barnacle, Jr.[21].

At the time of its bankruptcy, First Brands—a company that reported approximately US$5 billion in net annual sales worldwide—declared just US$12 million in cash in its corporate bank accounts and over UD$9 billion in liabilities.[22]

First Brands engaged in a legitimate business practice known as invoice factoring. This is a financial agreement where businesses sell their unpaid invoices to a third-party company, called a factor, who gives the business a percentage—between 70 percent to 90 percent—upfront, paying the rest, minus a two percent to five percent fee, after the customer pays.

With invoice factoring, the company gets immediate cash, rather than waiting 30, 60, or 90 days for customer payment.

“In some deals, according to the bankruptcy filing, First Brands received payments from factors within 30 days by pledging payments from retailers that might not be due for a year. Some deals required the receivables to be paid directly to the lenders; others allowed the receivables to be paid initially to First Brands, which was then supposed to forward the payments to its lenders. First Brands owes some US$2.3 billion to third-party factors. The special committee is trying to determine whether the third-party factors have received what they’re owed. Of greater concern, the company says, is the question of whether some receivables have been factored more than once — in other words, whether the same collateral has been pledged to more than one lender.”[23]

Although banks like Jefferies have exposure to First Brands, the collapse raised eyebrows due to the private credit angle of this story. Indeed, Sarah Breeden the Deputy Governor for Financial Stability at the Bank of England testified about the “high leverage, opacity, complexity and weak underwriting standards” in the private assets market.[24]

For Tricolor, they operated in a high-risk segment, focusing on subprime (lending to borrowers with poor credit history) auto lending, often to undocumented borrowers.

JPMorgan CEO Jamie Dimon expected to see more bankruptcies like First Brands if the private credit market takes a tumble. “I probably shouldn’t say this, but when you see one cockroach, there are probably more. And so we should— everyone should be forewarned on this one,” he told analysts on his Q3 earnings call.[25] JP Morgan wrote off $170 million in bad debt to Tricolor.

 Lloyd Blankfein

One of the most storied names on Wall Street, and the man who led Goldman Sachs through the 2008 Financial Crisis as CEO noted in an interview with Bloomberg that he was worried about problems brewing in the private credit sector especially given how illiquid and opaque these assets were and in light of the relative calm in the decade after the 2008 downturn.

Joachim Nagel

The president of Germany’s central bank (Bundesbank) and European Central Bank Governing Council Member, warned… of ‘spillovers’ from the private credit market, calling it a “regulatory risk.”[26]

 Tobias Adrian

The director of the IMF’s Monetary and Capital Markets Department expressed similar sentiments noting that the IMF was watching underwriting standards very closely.

Morgan Stanley

Strategists at US bank Morgan Stanley foresee a wave of defaults higher than what was observed during COVID due to loans extended to software companies whose business model and future is being threatened by AI.

Redemption Issues

As private credit evolves, fund managers are increasingly turning to evergreen structures to meet investor demand for flexibility and ongoing access.[27]

Traditionally, private credit has been offered through closed-end fund structures, characterised by fixed terms, capital calls and predefined exit horizons.

However, evergreen fund structures — open-ended vehicles with no fixed termination date — are increasingly gaining traction in private credit especially because they offer redemptions to investors.

This means that like with a traditional ETF (Exchange Traded Fund) or mutual fund, investors can subscribe and redeem capital on a periodic basis.[28]

These funds may be semi-liquid or characterised differently and they are also known as perpetual or open-end funds.

Yet this very advantage, of fulfilling investor redemption requests has come under scrutiny recently. Some of the most prominent asset management and private credit firms have been hit by waves of investor redemptions.

1.BlackRock, the world’s largest asset manager said it was capping withdrawals from its HPS Corporate Lending Fund (HLEND), a US$26 billion private credit fund that received US$1.2 billion in redemption requests in the first quarter of this year.

As first reported by the Financial Times, the fund said it was paying out US$620 million of those requests, or 5 percent of its net asset value. BlackRock declined to comment on changes to the fund beyond a letter  posted on its website stating among others; that the fund received shareholder requests to repurchase approximately 9.3 percent of shares outstanding as of December 31, 2025 , exceeding the five percent framework for the first time since its inception.

2.Over at Blackstone, the world’s largest alternative  asset manager, executives made a decision to help fulfill withdrawals from its flagship private credit fund by having senior leaders contribute US$150 million.

This sum together with US$250 million of the firm’s own capital, helped cover a record redemption request of roughly US$3.8 billion, equivalent to about 7.9 percent of net assets. The US$82 billion fund is known as BCRED and it is the world’s largest private credit fund.

 CAVEATS

Cambridge Associates, a global investment firm believes that the First Brands and Tricolor recent bankruptcies do not signal systemic problems in private credit, that both cases are idiosyncratic, driven by fraud and unique business practices, and finally, the impact was felt across both private and traditional credit markets, not just private credit[29].

Mark Jenkins is the Co-President of Carlyle (the global alternative asset manager) and Head of Global Credit & Insurance as well. In a conversation with Brian Marcus, the head of Cross Platform Investing for Global Credit, Jenkins noted that default rates had come down from their highs.

On the First Brands and Tricolor fiasco, he questioned the quality of the underwriting (the process of evaluating and approving loans or debt investments in private companies), and concluded that the incidences of defaults were not materially higher than they have been in the past three to four years although they seem more pronounced.[30]

Jon Gray, the President and Chief Operating Officer of Blackstone noted in an interview with CNBC that despite the investor outflow or redemptions, they recorded $2 billion of inflows (new money) into BCRED. He highlighted that it was normal for investors to get nervous whenever they see the “constant spin cycle” in the media about private credit issues.

Final words and what’s next?

Private credit has experienced enormous growth as an asset class, changing how capital is allocated.

This growth has been possible due to a host of factors including US regional banking issues, regulatory requirements imposed on banks ever since the 2008 Financial Crisis and institutional investors (pension funds, university endowments) for example frustrated with low returns, chasing higher yields on investment.

Because alternative lenders are subject to less stringent capital reserve requirements, they can offer more flexible funding solutions to address financing gaps. However, this lower reserve threshold may heighten investor risk by limiting the lender’s capacity to absorb losses during periods of financial stress.

Banks being traditional lenders have taken notice and have struck up partnerships with prominent private credit firms; with some more successful than others. For example, Apollo and top 4 US bank, Citigroup have a US$25 billion private credit programme.

Barclays however has been less successful in its partnership with AGL, which has struggled to attract fresh investment since their tie-up according to the Financial Times.

Aside defaults, the exposure to software companies has resulted in some loans being marked down even BCRED posting its first loss in three years

Regulatory scrutiny will grow, investor redemption requests will definitely continue and even more funds will cap these withdrawal requests, furthering the never-ending headlines about turmoil in the sector. On one hand, the loan default rates are expected to ‘flush out’ bad debt as a healthy reset for the sector but at what cost?

Endnotes

https://caia.org/blog/2025/06/09/evolution-private-credit#_edn1 accessed 3 March 2026

Dylan Thomas, Annie Sabater, ‘Top 20 private credit managers hold more than one-third of dry powder’ (6 Jan 2025) https://www.spglobal.com/market-intelligence/en/news-insights/articles/2025/1/top-20-private-credit-managershold-more-than-one-third-of-dry-powder-86886642 accessed 5 March 2026

ENDNOTES

https://www.pimco.com/gbl/en/resources/education/understanding-asset-based-finance accessed 13 March 2026

About the author

Kwaku Asihene Dapaah is a lawyer at Ashong Benjamin and Associates. He can be reached via [email protected]

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