PRIVATE CREDIT PANIC 14B KKR FUND GOES JUNK

Something just happened that's not supposed to happen in the private credit markets. A $14 billion private credit fund tied to KKR, one of the world's largest private credit companies, just got downgraded by Moody's to junk status. The FSKKR Capital Corp Fund posted a net loss of $114 million in the fourth quarter of 2025. According to CNBC's story, the stated reason for the downgrade was that the fund's underlying asset quality had worsened. Translation, what they're selling to their investors does not represent the true value of their assets and their holdings. So what actually happened is that the percentage of borrowers who've stopped making payments on their loans rose to 5.5% of total investments at the end of 2025. Let me explain why this downgrade matters and why it signals that private credit is now unwinding. Many institutional investors and pension funds and insurance companies are not supposed to be holding junk rated assets. They have rules, mandates, and committees that require them to stay in investment grade. In the public markets, that means just selling the asset, right? But in private credit, it's not that simple. These assets are not liquid. You can't just hit a button and get out of the investment. So what do they do? Well, first, they're going to stop putting in new money. Why would they put new money into a junk rated asset? They're also going to start pulling back allocations. And lastly, they're going to increase their request for redemptions. But there are other repercussions from this downgrade. One is that the borrowing costs for KK&R are going to go up, and that's going to cause lower future returns for the investors, and the investors are going to increase their redemption requests. But I think one of the biggest things is this. If you have a downgrade happening to a fund sitting in one of the world's largest private credit management operations, what do you think is about to happen when hundreds of other firms in private credit suffer downgrades? Meaning the floodgates have now opened. This is happening right now. So please don't forget to subscribe to the channel and check out the newsletter. It's getting a fantastic early reception. The link is in the description below. So this is where things get even worse. A couple weeks ago, I covered the story of BlackRock capping investor redemptions at 5%. I said in that video, just wait. This will set the tone for what other private credit companies will now do. As many insiders were already coming out and saying, they were just waiting for a big player like BlackRock to do that so they could follow suit. So late yesterday, news breaks that Apollo Capital Management's redemption requests its $25 billion business development company called Apollo Debt Solutions hit 11%. What'd they do? The same thing BlackRock did. They capped withdrawals at 5%. And in February, Apollo posted their first monthly loss in more than three years. The Bloomberg story that covered it said that Apollo effectively returned 45% of capital to redeeming investors. That means that investors were not able to withdraw the remaining 55% of their money. So are you okay getting 45 cents on your dollar back when you want it as the fund assets are dropping, downgrades are hitting? I would think not. Just a few days ago, I did a show and I shared that John Zito, Apollo Capital's credit chief, he was out admitting all the marks are wrong in private credit. And then he also was out right after the BlackRock capital emits redemptions, he came out and said that was exactly the right decision. So it's no coincidence that his own firm yesterday announces that they are gaining redemptions. And Apollo's redemptions in the first quarter have now exceeded the fund's inflows for the same period. Let me repeat that. Their redemptions have exceeded the inflows. And that's with them capping at 5%. And to top this whole thing off this morning, I see a story from Bloomberg that Ares Management, another huge private credit firm, is also limiting redemptions at its $10.7 billion private credit fund. The Ares strategic income fund cap withdrawals at yep, 5% after investors sought to redeem 11.6%. Let me show you a chart real quickly that puts this in perspective. It shows quarterly redemption requests in some of the largest private credit funds, Apollo, BlackRock, Blackstone, HPS, and Morgan Stanley. And it compares the redemption requests from quarter three 2025, quarter four 2025, and the first quarter of this year. This is only three quarters, folks. Take a look at that. Look at the massive increase in redemption requests among some of the largest private credit funds. If that picture does not paint a thousand words, I don't know what does. But all of this signals that the private credit dream is quickly becoming a private credit nightmare. And this is the part that most people miss. It doesn't start with massive defaults. It starts with change in behavior, investors wanting out. At a time when inflows are not keeping up with outflows. The KKR downgrade, from my perspective, just put gasoline on these flames. And who feels this? As we've discussed repeatedly, it's retirement portfolios, pension funds, insurance products, income-focused funds that people rely on, and a whole bunch of mom and pop investors that have been piling into private credit at the behest of their portfolio and asset managers over the past couple of years. Look, BlackRock did not cap redemptions a couple of weeks ago for no reason. John Zito didn't come out and say the marks are all wrong for no reason. Apollo didn't gate withdrawals yesterday for no reason. And Ares is not capping redemptions today for no reason. And the KKR fund didn't get downgraded to junk for no reason, folks. The fund managers are already out on the media saying this is overblown, their funds are strong, and that they believe in long-term investor value. You're going to hear that over and over and over as this gets worse. But there's a reason why the IMF is out this year saying that risks from non-bank financial institutions will spill over into banks. There's a reason why Jeff Goodluck recently said that private credit is his top candidate to start the next financial crisis. Quickly, how entangled are the US banks with private credit? The Federal Reserve range is $100 billion, but Moody's says it's upward of $300 billion. If you figure in unutilized commitments like lines of credit, we're now in the neighborhood of about a trillion dollars. The path of contagion is private credit losses become so severe that the credit risk of the loans ends up on the balance sheets of the big banks. This erodes capital and starts legitimate bank runs. You might think that sounds alarmist, but those aren't my words. So now you've got big name firm downgraded to junk, signaling higher risk, the same time investors are rushing for the exits. And in response, the funds are limiting these withdrawals. Okay, so the unwind has begun. Thanks for watching today. If you enjoyed the content, leave me a like. Please subscribe to the channel. If you're not subscribed, we can keep growing the community. Check out the newsletter. Leave me your thoughts and comments. With that being said, I'll talk to you soon.