What is a Private Credit Crisis?

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What is a Private Credit Crisis?

You may have heard this phrase in the news lately and you might wonder “what is private credit, why are they in a crisis, and why should I care?” That’s exactly what we will answer in today’s episode.

I’m going to start with why you should care. First of all, it is possible that concerns in this space could bleed over into the economy at large. I’ll talk about the chances of that later in the episode. A second reason you should care is that some of you have exposure to private credit and you don’t know it. If you own a BDC (which stands for Business Development Company) you may have some exposure to private credit. You also might have private credit in your 401k or other investments. Now I want to be clear that this doesn’t necessarily mean you have cause for concern. I’ll explain why that is as we seek to answer the next question.

What is private credit? To understand private credit, you need to understand how a bank works. An FDIC insured bank borrows from the public in the form of deposits. Your checking account is really you loaning the bank your money. In return, the bank offers you a few benefits. First of all, it offers you a safe place to keep your money. Secondly, banks offer you the ease of transferring your money. And lastly, sometimes a bank offers to pay you interest on your account. Banks then take this money and loan it out to others. The difference between what a bank pays for deposits and what they receive in interest from loans is one of the primary ways banks make money. So, when you hear the term private credit, think about a business that isn’t a bank, but is doing some of the same things banks do on the lending side. These are non-banks sometimes called shadow banks. But these non-banks, or private credit companies are not getting their money in the form on deposits accounts – they are getting their money from investors, typically higher income or higher net-worth investors who are committing their money for an unknown period of time in turn for a dividend or some interest. These private credit companies take that investor money and lend it to other businesses, some of which are to companies with lower credit quality. In other words, riskier loans that banks won’t make. Over the last many years, private credit companies have offered a good return to investors. But recently there is increased concern that some of these risky loans might lead to default. In other words, that the private credit company might not be paid back in full. There have been a few high-profile defaults in recent months that have raised eyebrows. One of these was First Brands Group, a huge maker of auto parts. According to Forbes they defaulted on $10 billion worth of debt back in September of 2025. A second instance was Tri-Color Holdings, a subprime auto-lender that filed bankruptcy in September of 2025. There have been several other defaults – but then add this to the recent, “AI is going to kill everything” assumption on Wall Street. This assumption is causing some tech companies to have had their value and/or their earnings negatively impacted. So, with these issues combined, some investors have asked for their investment to be given back to them in the form of a redemption. You can’t just withdraw your money from these private credit companies whenever you want. They have the discretion to allow for redemptions or to restrict them. This prevents all out “runs on the bank” or in this case, “runs on the private credit company.” So, many of these companies are scrambling to either sell assets to fund redemptions, or they are not allowing investors to get out of the funds. Some of the companies in the news for large investor redemption requests are Blue Owl Capital, Ares Management, Apollo Global, Blackstone, and KKR. There are also some investment banks in the same boat. Now some of these companies have other good investments that will offset the losses on the bad ones. But some of these companies will have additional bad investments that are still under the hood. Jamie Dimon, Chairman and CEO of JP Morgan Chase made a comment at the end of last year that when you see one cockroach it usually means there are more. So, this is a developing story. Companies with lots of debt can get hit hard when interest rates go up. I would bet that we haven’t seen the last high-profile bankruptcy in the private credit space.

There are good reasons to think that this crisis remains somewhat contained. The lack of mark-to-market accounting allows for many of the troubles on their balance sheet to play out behind closed doors. For many lenders, time can cure concerns over a few loans that go bad because there are several others in mix that don’t go bad. This shadow banking space has really only been in existence for about 15 years and this is the first time these balance sheets have been significantly stretched and tested. This can actually be really good for the industry in the long run – recalibrating risk, reminding people that not everyone is able to pay back what they borrow, and reminding the market that there are consequences for aggressive lending.

At Foundation Bank and MBC, one of our core values is Absolute Honesty. If we think your small business is taking a large amount of risk, we will give you our perspective. We want to do more than lend money. We want to be a trustworthy resource to help you make good financial decisions. We build creative financial partnerships. Why don’t you start yours with us today by visiting foundationbank.org. We hope you’ll subscribe to this podcast to it in your favorite podcast app and share it on social media. Until our next episode, God bless you

-President Chad P. Wilson, CFP

Today’s episode of “Money Matters” was written and recorded by President Chad P. Wilson of Foundation Bank/McKenzie Banking Company on April 20, 2026. This episode does not constitute financial advice. Please consult a financial professional to discuss your specific needs. Any rates mentioned are subject to change and are accurate as of the recording date. Foundation Bank/MBC is an Equal Housing Lender, Member FDIC.