The Private Credit Crisis Just Went Public...

Jeff Snider · Atlas Financial

Private credit valuations are stale and lagging public prices, so investors are right to exit.

Private loans don't trade on exchanges, so managers estimate values with models, comparable assets and recovery assumptions, which lets marks adjust slowly. Snider argues this happens even as public securities from similar borrowers fall rapidly. He says the lack of daily volatility delays recognition of economic risk rather than eliminating it. Investors submitting redemptions are therefore responding to what the public market shows, not overreacting. He describes the stress as hidden behind valuation practices, with public CCC bonds now providing the price discovery private funds lack. Redemption gates, he adds, reinforce the incentive to exit early and repeatedly.

“The absence of daily volatility doesn't eliminate economic risk. It merely delays its recognition,”at 6:33

Jeff Snider · Atlas Financial

Sponsors shopping their public BDCs at discounts signals they don't expect a rebound.

Snider cites Bloomberg reporting that many publicly traded business development companies are being evaluated for sales or strategic transactions, including names such as Ares, Barings, BC Partners, Churchill, TCP Capital, Whitehorse and MidCap Financial. He notes that sponsors normally value BDCs for management fees and permanent capital, so they are usually reluctant to give them up. BDC shares trade at large discounts to reported NAV, so a buyer could pay a premium to the share price and still buy the portfolio below its stated value. If managers believed their marks were recoverable, they would hold and wait for a rebound. Shopping the vehicles instead suggests they don't expect a recovery, which he describes as the people closest to the portfolios now looking for an exit.

“Shopping the vehicle suggests at least some managers don't expect that rebound or believe the effort required to obtain it will outweigh any of the rewards.”at 11:30

Jeff Snider · Atlas Financial

Australia's private credit market is highly exposed to real estate, so a property failure is dangerous.

Snider uses the Bathla Group collapse to show that the problem is global, not confined to the US. Bathla had roughly A$3.3 billion of debt from more than 40 private credit funds, with some loans offering returns near 15%. Those high returns reflected a borrower exposed to rising construction costs, higher interest expenses, weaker property demand and falling prices. Floating-rate private loans raised its debt burden as rates rose. He estimates Australia's private credit market at around A$200 billion, with as much as 60% potentially linked to real estate. That concentration makes a large property failure especially dangerous, and the resulting regulatory scrutiny is widening.

“Australia's private credit market is estimated somewhere around 200,000,000,000 Australian dollars with as much as 60% potentially connected to real estate. And that concentration makes a large property failure particularly dangerous.”at 14:41

Jeff Snider · Atlas Financial

Public credit markets are deteriorating fast and the credit cycle is turning toward downturn.

CCC junk bond spreads are approaching 1,300 basis points, the threshold Snider flagged weeks earlier, with 1,500 as the next serious level. CCC spreads have already passed the March 2023 banking-crisis highs and are nearly above 2022 levels. Snider says this has been building for more than a year and is now accelerating, and that it is observable in traded bonds rather than private marks. Investment-grade spreads have also widened enough to suggest the stress is no longer isolated. He argues private credit was where the bubble's excesses surfaced first, and public credit is now catching up to the same deterioration. He says the credit cycle is turning and that this is not a generalized 2008-style liquidation, though 'not 2008' is a low bar.

“This is becoming a public credit story, and it is taking off fast.”at 0:49

Jeff Snider · Atlas Financial

Leveraged loan prices are collapsing toward March energy-shock lows, confirming broader credit stress.

Snider says leveraged loan prices are falling toward their March energy-shock lows, with some measures near multi-year lows. He treats these loans as more observable than private marks, since they trade in institutional secondary markets. He acknowledges that a loan below par does not guarantee default and that price moves can reflect illiquidity or broad risk aversion. He argues that when loan prices fall alongside surging CCC spreads and private fund withdrawals, dismissing the move as a technicality becomes much harder. He reads this as different parts of the credit market reaching the same conclusion that the weakest borrowers are running out of room. He also notes the floating-rate structure cuts both ways: borrowers' interest costs rise as benchmark rates rise, and that pressure is squeezing them.

“Leverage loan prices are falling toward their lows reached during the March energy shock with some measures nearing multi year lows themselves.”at 8:33

Jeff Snider · Atlas Financial

Credit-cycle downturns are self-reinforcing: weak growth tightens credit, which deepens the slowdown.

Snider describes a feedback loop. A weak economy reduces revenue and cash flow. Lenders respond by becoming more selective and demanding higher yields. Companies then cut investment, inventories and hiring because financing is more expensive or unavailable. Those cutbacks weaken income across the economy, reduce demand further and pressure the weakest borrowers again. He argues the economic problems are becoming harder to conceal, and that the weakest companies enter this process first, which is why CCC bonds and leveraged loans are key signals.

“A weak economy reduces revenue and cash flow. Lenders respond by becoming more selective and demanding higher yields.”at 11:58

Jeff Snider · Atlas Financial

Banks are still heavily exposed to private credit through lending, warehousing and back leverage.

Snider argues the stress is not contained outside the banking system. Banks provide financing, revolving facilities and subscription lines to private funds. They also warehouse loans, finance leveraged transactions and lend to the asset managers themselves, providing back leverage. Because of these links, deterioration in private credit passes into bank balance sheets. He points to bank stocks having fallen sharply as evidence the market is already pricing that exposure.

“Contained outside the banking system? Well, banks are still exposed. They provide financing, revolving facilities, subscription lines.”at 18:18