What’s Going on in Private Credit?

Summary

• The credit sector has evolved from a 1968 market of only stocks and high-grade bonds into a massive field of non-government debt.
• The 1970s saw the acceptance of non-investment grade debt, enabling the creation of a $1.5 trillion U.S. high yield bond market.
• The 1980s popularized leveraged buyouts & increased corporate leverage, leading to the formation of the private equity industry.
• The 1990s introduced broadly syndicated loans & tranched securitizations, growing the U.S. leveraged loan market to roughly $1.5 trillion.
• The 2000s featured a rise in alternative investments, sub-prime mortgage lending, & mortgage-backed securities that contributed to the 2008-09 Global Financial Crisis.
• The 2010s marked the expansion of direct lending as private credit filled the vacuum left by re-regulated banks.
• The 2020s involved marketing direct lending vehicles to individual & retirement investors, ballooning assets under management.
• Investment bubbles typically begin with newness, a grain of truth, & envy-driven participation that leads to lowered standards & excessive prices.
• Direct lending grew to approximately $2 trillion over 15 years, with hundreds of firms entering the market & accepting lower yields & reduced safety.
• Recent bankruptcies of First Brands & Tricolor in mid-2025 raised concerns about fraud & liquidity in business development companies.
• Software debt has grown to represent 20-30% of the direct lending market, often involving companies acquired at high EBITDA multiples.
• Artificial intelligence has reduced the need for human coders, potentially impacting the cash flows of software companies that serve as collateral for direct loans.