Private credit is really going to get it this time . . . right?

The shorts are talking their book, but what does the data show?

• the shorts have been out for private credit

• what risks do they see? let the IMF count the ways

• PIKs, and negative free cash flow, and bankruptcy work-arounds, oh my!

• if things get bad for private credit, that’s good for private credit

• default rates continue to . . . be pretty ok

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Private credit is really going to get it this time . . . right?

Some of the big hitters in private credit reported last week, and the results were generally fine.

Earnings came in low, but fee-income keeps growing, and that’s what public market investors seem to care about most.

Still, if you were bearish on the fate of the economy, then you’d almost certainly be bearish about private credit. I mean, if main street businesses start going belly up (and if borrowing costs rise), then that’s going to be uncomfortable for their lenders. Even now, bankers are telling their clients “refinance while you still can.”

On the other hand, there’s something exciting about being a lender during a downturn. That’s when borrowers need money the most, and if you’ve got money to lend, then you can demand pretty attractive terms.

So which one is it? Is private credit about to implode (bad), or be a sole source of capital in a desert (good)?

Random Walk has looked at this variously in the past, and despite my best efforts to find evidence of chicanery, I’ve come up mostly empty.

But what about now, with all the volatility and all that?

As it turns out, it’s a bit of both. Or rather, it depends on who you ask.

BDCs, a popular short

Certainly, the bears have had their claws out.

BDCs have been a popular short, recently: