Acid test for private credit

PRIVATE credit is at a crossroads.

On the one hand, a spate of bankruptcies and collapses – First Brands and Tricolor in the US last year and, more recently, UK mortgage lender Market Financial Solutions (MFS) – is raising questions about credit quality and poor underwriting standards. In MFS’ case, creditors reportedly face a shortfall of £1.3 billion (S$2.2 billion). On the other hand, there is the liquidity pressure as investors seek to redeem holdings.

Managers of private credit funds have largely dismissed the US bankruptcies as isolated incidents. But the overhang of uncertainty over debt extended to software and services companies can’t be so blithely dismissed.