The boom in private credit, a fast-growing $1.5 trillion corner of Wall Street born during an era of ultralow interest rates, is starting to show cracks, WSJ Pro Bankruptcy reported. High borrowing costs, an economic slowdown and contractions in credit markets are testing private credit as never before. Many borrowers paying floating rates that fluctuate with benchmark interest rates are having a difficult time keeping up with rising debt payments, resulting in defaulting loans and, in some cases, bankruptcies. Some companies that turned to private debt to fund acquisitions and expansions during years of low interest rates are finding it harder to pay those installments. Small and less profitable borrowers were some of the most frequent users of private debt. Now, many of these companies are in negotiations with their private lenders and advisers. Private-credit funds haven’t weathered an interest rate environment like this before. The only recent whiff of trouble was at the start of the pandemic, when a slew of debt went unpaid, but that was quickly repaid as companies and consumers received massive government stimulus checks. The asset class largely thrived in an easy-money environment by collecting interest payments.
