The $1.4tn private credit industry faces its “first serious challenge” as tens of billions of dollars of loans underwritten at the top of the market in 2021 are strained by sharply higher interest costs and a slowing economy, analysts at rating agency Moody’s cautioned on Friday.
The warning from Moody’s, which singled out two of the largest players in the sector — funds managed by lenders Ares and Owl Rock — underlined the challenge facing lenders who raced to win new business before financial markets tightened in 2022.
The loans were largely underwritten when interest rates were close to zero and economic growth was still booming in the US, a world that vanished once the Federal Reserve began to aggressively lift interest rates in a bid to cool US inflation.