Key insights
- Growing pains in private credit, including BDC redemption requests and lending restrictions from banks like JPMorgan, signal potential stress in the sector. Oversized exposure to software firms disrupted by AI is a contributing factor. This could lead to tighter credit conditions for middle-market companies and negatively impact equity valuations dependent on private credit financing.
Michael Gross, Co-Founder of SLR Capital Partners said pressure on business development companies are part of private credit's "growing pains." JPMorgan Chase & Co. is restricting some lending to private credit funds after marking down the value loans in their portfolios. At the same time, BDCs which lend directly to middle-market companies are seeing elevated redemption requests amid fear of loss related to oversized exposure to software firms disrupted by AI. Besides equity from limited partners and public investors, private credit funds rely on banks for funds. They also raise debt in the investment-grade bond market.