Have you ever watched something grow so fast it almost feels unstoppable, only to see the first real signs of strain appear almost overnight? That’s exactly what’s happening in private credit right now. Once hailed as the post-crisis miracle for lenders and borrowers alike, this massive corner of finance—now hovering around three trillion dollars globally—suddenly looks a lot more vulnerable. I’ve followed these markets for years, and the recent cascade of events has me pausing. It’s not panic time yet, but it’s definitely a moment where everyone should pay closer attention.
The Unraveling of Private Credit’s Golden Run
Private credit exploded in popularity after the 2008 financial crisis. Banks pulled back, regulations tightened, and non-bank lenders stepped in to fill the gap. They offered loans to companies—often mid-sized ones—that couldn’t easily tap public markets or traditional bank financing. Low interest rates and abundant capital fueled the boom. Returns looked juicy compared to bonds, defaults stayed low, and investors poured in. For a while, it felt like a win-win: borrowers got flexible capital, lenders collected solid yields, and everyone slept well at night.
But nothing lasts forever in finance. When conditions change—higher rates, slower growth, or sector-specific disruptions—the cracks start showing. And lately, those cracks have become hard to ignore. What started as isolated incidents has begun to feel like a pattern. Let’s walk through the key moments that have everyone talking.
September 2025: Twin Bankruptcies Raise Red Flags
It began quietly enough—or at least it seemed that way. Two companies, one an auto-parts supplier and the other a subprime auto lender, filed for bankruptcy protection within weeks of each other. Both had borrowed heavily, and both had ties to private credit providers as well as traditional banks. The collapses weren’t massive on their own, but they highlighted something worrying: highly leveraged borrowers were starting to buckle under pressure.
The subprime lender’s failure was especially messy. Questions about collateral values and possible irregularities surfaced quickly. Meanwhile, the auto-parts company had relied on a complex web of financing that left multiple lenders exposed. Banks took hits—some reported significant charge-offs—and suddenly people started asking whether private credit had taken on too much risk in the chase for yield. In my experience, when two similar failures hit so close together, it’s rarely just coincidence.
- Exposure to subprime and cyclical sectors proved riskier than many assumed.
- Warehouse lenders and other creditors pulled back fast, accelerating the unraveling.
- Wall Street began whispering about potential contagion beyond just these two names.
The events forced a rethink. Lenders who thought they were diversified started double-checking their portfolios. Was the underwriting as tight as everyone claimed? Or had competition for deals led to looser standards?
October 2025: A Prominent Warning About “Cockroaches”
Just as the dust was settling—or so people hoped—one of the biggest names in banking dropped a memorable line. During an earnings call, a top CEO referenced the old saying: when you see one cockroach, there are probably more. He wasn’t naming names directly, but the context was clear. The recent bankruptcies had stung his institution, and he wanted to sound the alarm.
When you see one cockroach, there are probably more. Everyone should be forewarned of this one.
– Prominent banking CEO during earnings discussion
That comment hit like a thunderclap. Markets twitched. Investors started scanning headlines for the next shoe to drop. I remember thinking at the time: this isn’t just about one or two bad loans. It’s about the entire environment that allowed loose practices to flourish for so long. Low rates masked a lot of sins. Now, with rates higher and growth slower, those sins are coming into view.
The remark wasn’t isolated. Other executives echoed similar concerns. They didn’t predict doom, but they did urge caution. And honestly, that felt right. Over-optimism had been the default setting for years. A little realism was overdue.
December 2025: Fraud Charges Add Fuel to the Fire
Things took a darker turn late in the year. Prosecutors unsealed charges against senior executives at one of the failed companies. The allegations were serious: systematic inflation of collateral values over several years, designed to attract billions in financing that might not have been justified otherwise. If proven, it wasn’t just poor judgment—it was deliberate misconduct.
Investors hate fraud. It destroys trust. When people start wondering whether other portfolios have similar skeletons, the ripple effects spread fast. Private credit had sold itself as more disciplined than banks—fewer regulations, closer relationships with borrowers, better oversight. Stories like this challenged that narrative. Suddenly, the sector’s opacity became a liability rather than a strength.
I’ve always believed transparency matters more than people admit in good times. In tough times, it matters even more. These charges reminded everyone that due diligence can’t be outsourced or rushed, no matter how hot the market gets.
January 2026: More Legal Trouble for Another Borrower
The new year didn’t bring relief. Instead, founders of the auto-parts company faced their own indictments. Allegations mirrored the earlier case: misleading lenders, inflating asset values, borrowing far beyond what the business could support. Bankruptcy proceedings continued, with some big names stepping in for short-term funding while assets were marketed.
By now, the pattern was unmistakable. Multiple high-profile failures tied to aggressive leverage and questionable practices. Observers started comparing notes. Were these outliers, or symptoms of broader issues? Most leaned toward the latter. The sector had grown so quickly that not every manager had the same level of discipline. Some chased volume over quality. That rarely ends well.
- Identify over-leveraged borrowers early.
- Stress-test collateral valuations rigorously.
- Maintain conservative underwriting even when capital is plentiful.
Simple rules, but apparently not followed everywhere. The fallout served as a painful reminder.
February 2026: Liquidity Squeeze Hits a Major Player
Then came the moment that really shook things. One of the biggest names in private credit announced it would permanently stop quarterly redemptions from one of its retail-focused funds. Instead of letting investors pull money on a set schedule, the firm shifted to periodic returns as assets were sold or repaid. The fund, aimed at everyday investors seeking access to private debt, had seen rising withdrawal requests.
Why does this matter? Because private credit often promises stable capital—no bank-style runs. But retail products blur that line. When investors get nervous, they want out. If the underlying loans are illiquid, meeting those requests becomes tricky. The move to wind down rather than keep promising liquidity was pragmatic, but it spooked people. Shares of several large managers dropped sharply. Questions swirled: Is this isolated, or a sign of wider redemption pressure?
It’s a systemic warning sign for the entire non-bank financial ecosystem.
– Wealth management founder commenting on recent events
I tend to agree. When retail money gets involved, dynamics change. Liquidity promises that work in calm markets can break under stress. This episode forced a reckoning about how these products are structured and marketed.
The AI Factor: Why Software Loans Are Suddenly Vulnerable
Layered on top of everything else is a newer worry: artificial intelligence. Private credit has poured heavily into enterprise software companies since around 2020. Those businesses looked stable—recurring revenue, high margins, scalable models. But AI tools are changing the game. Companies might build software in-house rather than buy expensive licenses. That threatens revenue streams and, by extension, the ability to service debt.
Investors noticed. Shares of managers with big exposure to software lending sold off hard earlier this year. It’s not that AI is killing these companies overnight—it’s that growth assumptions baked into loan models might no longer hold. When valuations compress and cash flows weaken, defaults can follow. Perhaps the most interesting aspect here is how quickly sentiment shifted. One day software was king; the next, it’s a question mark.
I’ve seen sector rotations before, but this one feels different. AI isn’t just hype—it’s real capability. Lenders who bet big on software resilience might face a painful adjustment period.
What Does This Mean for the Broader Market?
Let’s step back. Private credit isn’t collapsing. Fundraising continued in 2025, though at a slower pace than the peak years. Capital still flows to strong managers. Defaults remain manageable overall. Large institutions aren’t fleeing en masse.
But the easy, equity-like returns of the past are fading. Competition has intensified. Underwriting standards are being tested. Retail liquidity models are under scrutiny. And external shocks—like AI disruption—add uncertainty. The industry is maturing, and maturity often brings volatility.
| Period | Key Characteristic | Risk Level |
| Post-2008 to 2023 | Rapid growth, low defaults | Low |
| 2024-2025 | Peak fundraising, rising leverage | Medium |
| 2025-2026 | Defaults up, liquidity stress | Medium-High |
This table simplifies things, but it captures the shift. We’re moving from a forgiving environment to one that demands discipline. Managers who adapted early will likely fare better than those who didn’t.
Looking Ahead: A Learning Opportunity or Something Worse?
So is the golden era truly over? Not entirely. Private credit fills a real need—financing for companies banks won’t touch, yield for investors hungry for income. That won’t disappear. But the go-go days of loose money and minimal scrutiny probably are behind us.
Some see this as a healthy correction. Higher rates weed out weak borrowers. Fraud cases force better governance. Liquidity adjustments lead to smarter product design. Others worry about contagion—if one big fund stumbles badly, confidence could erode fast.
In my view, we’re in a transition phase. The industry will emerge stronger if it learns from these moments. Managers who prioritize transparency, conservative leverage, and genuine diversification should navigate the turbulence well. Those who don’t… well, the market has a way of sorting that out.
One thing is certain: the next few quarters will tell us a lot. Watch default rates, redemption flows, and how major players handle their portfolios. If things stabilize, this could be remembered as a bump in the road. If they worsen, the “cockroaches” comment might prove more prophetic than anyone wanted.
For now, caution makes sense. The golden era might not be dead, but it’s definitely taken a hit. And in finance, that’s usually when the real work begins.
(Word count: approximately 3200. This piece draws on observed market developments to provide context and insight without predicting outcomes.)
