Private credit attracted investor attention in recent years, supported by structural shifts in capital markets, longer private ownership cycles, and changes in traditional bank lending. As institutional and high-net-worth investors seek alternative sources of income and diversification, capital continues to flow into private credit strategies.
However, the recent bankruptcies of First Brands Group and Tricolor have prompted questions about whether these events reflect broader weakness in the private credit market. While such concerns are understandable — and corporate lending always carries risk — we believe these cases are company-specific, not indicative of a systemic issue across the private credit landscape.
lIsolating the risk: Why these bankruptcies are not a private credit crisis
In our view, these particular failures are best understood as isolated, idiosyncratic events rather than signs of broader stress in private credit.
1. Company-specific challenges
- First Brands Group faced excessive leverage from aggressive, debt-financed acquisitions, combined with tariff exposure and serious accounting concerns.
- Tricolor operated in the highly volatile subprime auto-lending sector and reportedly faced allegations of collateral misrepresentation.
Importantly, both companies relied heavily on syndicated and bank-originated loans, not the type of direct lending that characterizes most institutional private credit portfolios.
2. Sector avoidance by quality managers
Experienced direct-lending managers typically avoid highly cyclical industries — such as auto manufacturing and subprime consumer finance — where earnings volatility and collateral risks are elevated. This disciplined sector selection is central to risk management.
3. The nature of direct lending
Direct lenders often extend credit to middle-market companies with private equity backing. These managers typically maintain access to detailed financial information, negotiate protective covenants, and engage closely with borrowers. This structure allows for more active monitoring and earlier risk detection than in broadly syndicated markets.
Private credit’s role in a diversified portfolio
For qualified investors, private credit may offer the potential for enhanced income and diversification. However, it is important to recognize that higher yields are associated with higher risk, including the possibility of borrower default and illiquidity.
In our view, a disciplined, long-term approach — focused on underwriting quality, diversification, and manager selection — remains critical.
- Manager discipline: The managers we work with, including well-established firms such as Blackstone and Blue Owl, continue to report stable portfolio performance and strong underwriting standards.
- Focus on stability: We prioritize exposure to non-cyclical businesses with resilient cash flows and strong governance practices.
- Long-term perspective: Private credit investing requires patience. While defaults will occur, we believe that over time, the income generated by well-underwritten portfolios can offset losses from isolated credit events.
The bottom line
Headlines about individual bankruptcies can obscure the broader picture. In our assessment, the recent failures of First Brands and Tricolor do not represent a failure of private credit as an asset class. Rather, they highlight the ongoing importance of rigorous underwriting, sector discipline, and manager selection in navigating the inherent risks of corporate lending.
Private credit remains, in our view, a compelling long-term opportunity for investors seeking differentiated income sources — provided it is approached with prudence, diversification, and an understanding of the associated risks.
IMPORTANT DISCLOSURE
This material is provided for informational purposes only and does not constitute investment advice, an offer, or a solicitation to buy or sell any security or investment product. All investing involves risk, including loss of principal. Private credit investments are illiquid and suitable only for qualified investors who can bear these risks. Past performance is not indicative of future results.