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Private credit panic - why investors are rushing for the exits

When a $2 trillion shadow market starts flashing red—where defaults are hitting pandemic-era highs and giants like Blackstone are locking investors' money away—you don't need a crystal ball to sense trouble. Richard Coffin cuts through the noise with evidence most analysts ignore: not just that private credit is cracking, but how its deliberate opacity mirrors pre-2008 risks. For time-starved readers, this is the rare explainer that turns Wall Street jargon into urgent, actionable insight.

The Illusion of Safety

Coffin masterfully dismantles the industry's core pitch. He notes how private credit "helped to fill an important gap left by traditional banks" after 2008 regulations pushed lenders toward safer assets. But this wasn't altruism—it was a fee-driven land grab. The real kicker? Institutional investors chased double-digit returns like Blackstone's "9.8% annually," blinding them to the lack of oversight. Coffin writes, "with private credit... investment firms raise a bunch of investor capital, lend to private companies, and then pass the returns onto investors charging exorbitant fees in the process." The repetition isn't accidental—it underscores how private credit repackaged private equity's playbook with identical profit motives. This lands because it exposes the emperor's new clothes: what looked like "safer" fixed income was actually riskier, less transparent debt.

When you see one rat, there's probably more.

Cracks Becoming Chasms

Coffin pivots sharply from theory to carnage. The bankruptcies of First Brands and Carvana—"combined debts of over $10 billion"—weren't the issue. It was how lenders went from "expecting full repayment" to writing off loans "below 20 cents" overnight. As he puts it, "How prevalent are these risky loans in the system?" His evidence is damning: Fitch reports defaults hitting "9.2%... rising above the level seen during the pandemic." Yet Coffin avoids alarmism. He concedes that "any one bankruptcy... isn't itself all that concerning" in this space—but the pattern (Apollo's $170M write-off, BlackRock's sudden $0 valuation) reveals systemic rot. This is where he shines: connecting isolated events to a trend even Morgan Stanley admits could hit 8% defaults. Critics might argue these are isolated to overexposed sectors like software—but Coffin preemptively notes private credit's "outsized exposure" to AI-vulnerable firms facing a "wall of maturities."

Private credit panic - why investors are rushing for the exits

Gates vs. Fire Sales

The redemption crisis gets Coffin's most nuanced treatment. He acknowledges that "trapping investors in their holdings might sound exploitive," but explains why gating withdrawals is "a fairly standard mechanism" for illiquid assets. "The funds generally have to hold their loans until maturity," he reasons, making gates a necessary evil to avoid fire sales. Yet he doesn't let the industry off the hook. His sharpest insight? The retail push—"democratizing" access via 401ks and Robinhood—created a "stylistic mismatch." Institutional investors (80% of the market) tolerate illiquidity; retail panic fuels "elevated redemption requests." Coffin paraphrases JP Morgan's CEO: "elevated redemption requests are being driven more by sentiment than fundamentals." But his own evidence undercuts that: when software loans with "lowest coverage ratios" face 31% maturities amid soaring rates, sentiment is the signal.

Bottom Line

Coffin’s greatest strength is exposing how private credit’s structural flaws—opaque valuations, fee-driven risk-taking, and retail mis-selling—create a perfect storm. His biggest vulnerability? Underplaying how AI disruption could accelerate defaults beyond software. Watch the $500 billion in private credit loans maturing by 2026—if even 10% crumble, this panic won’t stay private.

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Sources

Private credit panic - why investors are rushing for the exits

by Richard Coffin · The Plain Bagel · Watch video

Hey everyone, it's Richard. You're watching the Plain Bagel. Over the past decade, we've seen the buildout of a massive lending machine outside of the traditional banking system. You may have heard of terms like shadow banking or NBFIs, non-bank financial intermediaries, or specifically in this case, private credit, but they all generally refer to the same idea of non-bank institutions carrying out functions that would traditionally be provided by banks.

with private credit whereby these non-bank institutions lend money directly to private businesses seeing particularly strong growth with the area up until recently being quote the hot new thing on Wall Street. However, with a fraction of the oversight and regulation over the last few months, we've started to see some cracks form from private borrower defaults and write offs to a rush for the exits by private credit investors. So much so that funds have begun restricting withdrawals. There's this growing concern that this fast growing segment of the financial system may have taken on too much risk.

Something that's led the stock prices for the companies running these private credit funds, including Blackstone, KKR, and Blue Owl, to drop anywhere from 20 to over 50% since September with us once again seeing warnings that things are starting to look a little pre208 financial crisis e which with everything else going on at this time doesn't make too many people all that optimistic. So, what's happening here? Is this just an example of markets getting spooked, or is there a more systemic issue at play here? Well, that's a great question and one that's unfortunately tricky to answer given the whole private part of private credit.

We don't actually have that much insight into the area given its opaque nature. But today, we'll cover what we have seen happen, why investors are scrambling to get their money out, what we do know about the financial health of private credit companies, and some important considerations to help put things into perspective. Not to convince you one way or another about the health of the market or where things are going to go from here, but just to give some important context when you hear claims of us going through another repeat of the financial crisis. But let's start at the beginning.

What exactly is private credit? Well, while the name could technically refer to any debt that's just not ...