On Sh*t... Another Private Credit Fund Just Blew Up

You think the private credit mess has gone away because, let's be honest, that's what you're led to think. Just look at the shiny AI stock indexes and NVIDIA's half a trillion. It's been roughly a year since tricolor and first brands became the warning signs, the first cockroaches suggesting something much larger might be hiding inside the walls of private credit. And because there hasn't been a dramatic collapse since then, the assumption is that the industry absorbed the losses, restricted a few withdrawals, and largely moved on. But the truth is almost the exact opposite. The credit cycle continues to shift downward and there has been no meaningful let up in the retreat from private credit funds. In fact, Blackstone's flagship B Cred fund, the biggest one on the Wall Street block, it has just limited redemptions for the second quarter in a row. At the same time, fundraising for non-traded business development companies or BDCs has collapsed by an astonishing 82%. The industry is still dealing with an estimated $15 billion withdrawal backlog and public BDC portfolios are shrinking. And that's only the one part. Outside the private credit funds, triple C junk bond spreads are old friends of triple hooks. They've reached 1053 basis points, the highest since the April 2025 tariff turmoil and around the extremes recorded during the August 2024 Japanese carry trade blowout. Australia has its own private credit withdrawals after the failure of a heavily indebted property developer. And a possible new cockroach has appeared over in iron trading, where more fraudulent invoices as collateral has drawn in banks of Jeffrey's linked fund, one of the world's largest commodity traders. You see, private credit's problems didn't disappear. They continue to spread if at their own pace. Start with Blackstone's private credit fund, better known as B Cred. B Cred is the largest non-traded BDC with approximately $77 billion in assets. It has become the flagship product of the private credit boom, a massive portfolio of privately negotiated loans packaged into a vehicle designed for wealthy individual investors. And for the second quarter in a row, B Cred shareholders requested to withdraw approximately 10% of their shares. And for the second consecutive quarter, the fund limited total repurchases to 5%. And it's the repetition that matters here. One quarter of elevator redemptions could be dismissed as nervous investors reacting to headlines. Two consecutive quarters with the same 10% withdrawal request? It shows the pressure hasn't meaningfully abated despite all the promises it was calming down. Investors continue asking for twice as much liquidity as the fund is willing to provide. Now, B Cred is not insolvent. And this doesn't mean Blackstone's about to collapse. But it does mean that a significant number of investors still want out. And they can't all In other words, for all the assurances made this year, they literally aren't buying them. And as long as inflows are strong and redemption requests are limited, the structure of private credit appears stable. But when inflows fall, as we'll see, and withdrawal requests remain elevated, which they are, the liquidity mismatch becomes increasingly visible, though in ways the average person might not always appreciate. Now look over at public credit, the weakest bonds, the weakest corporate junk bonds over there, the triple C's or the triple hooks, they're sending the same messages we're seeing from investors in private credit, the spreads in the triple C's, 1053 basis points shows that investors are indeed nervous about the entire credit cycle, not just one part of it. In plain English, investors are demanding about 10 and a half percentage points of additional yield over comparable government debt to hold these risky bonds. That is seriously distressed territory. The spreads at its highest since the April 2025 tariff turmoil and equal to the extreme levels seen during the August 2024 Japanese carry trade liquidation. And this matters because triple C debt is where optimistic economic narratives are colliding with actual cash flow constraints. Triple C rated companies commonly have high leverage, they got weak interest coverage, limited liquidity and frequent refinancing needs. Some survive only as long as lenders remain willing to extend maturities or provide them with new refinance money. When investors retreat from triple hooks, they're saying that the lower quality businesses may not be able to refinance, repay their obligations without restructurings, defaults or substantial losses for creditors. Now, got to point out here, the signal isn't uniform across public credit. Investment grade spreads remain historically tight, while stronger portions of a high yield market still look relatively calm. And all that allows people to argue that the broader economy and financial system remain resilient. But the bottom of the market strongly disagrees. Investors are still willing to believe the soft landing story where balance sheets are strong. They're refusing to believe it where borrowers are most vulnerable. And that's exactly where private credit is concentrated. Much of its growth, smaller, heavily leveraged companies that would often carry low public credit ratings if they were rated at all. So these two stories are the same one from different sides. I almost never do ads and I say no to the vast majority of those that are brought to my attention. But I was thrilled to be able to work with today's video sponsor, Monetary Metals. And the reason is because they're solving a big problem, one that I've been highlighting for a very long period of time. Gold is a safe haven. But other than sitting in a vault, it doesn't do anything. Monetary Metals fixes that. 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Managers repeatedly enforce quarterly limits, commonly allowing redemptions equal to only 5% of fund share so they could avoid having to liquidate illiquid positions. The result is an estimated withdrawal backlog of approximately $15 billion. Even if new redemption requests begin to decline, managers still have to work through the existing queue. Investors who requests were only partially honored may return during the next redemption window and ask again, which they've been doing repeatedly all year. Meanwhile, the source of replacement capital is drying up. And that's just as important, if not more important than the withdrawals. Fundraising for non-traded BDCs fell to approximately $2 billion in the second quarter, which was down from $11 billion a year earlier. That's an 82% collapse in the lowest level since the pandemic and the lockdowns in 2020. Back when the market was much smaller and some of its largest vehicles didn't even exist yet. This changes the entire flow dynamic. During the boom, new investor money could finance new loans, cover redemptions, and expand those portfolios. Strong inflows allowed funds to grow even while some existing investors were exiting. Now the process is completely reversing. Less new money is entering. More existing investors want their cash out. Managers have to depend more heavily on borrower repayments, asset sales, and those are popping up too, and available liquidity from banks and credit lines to be able to meet these repurchase requests. And private loans aren't exchange-traded securities with continuously observable prices. Selling them quickly can be difficult, especially when buyers become more selective. And that explains the gates. The funds want to avoid becoming forced sellers of illiquid loans at discounted prices, but the restrictions could also reinforce these investor anxieties. If investors believe future liquidity become even more limited, they have every incentive to submit redemption requests even earlier. It isn't a conventional bank run. These shadow banks don't promise deposits on demand, but economically, it can create similar pressure. Everyone knows there is more potential demand for cash than immediate cash available. That pressure is no longer limited to just strictly American funds. We've talked about some in Europe, but over in Australia, the failure of Bathla Group has really rattled private investors and caused a couple of funds to start restricting their withdrawals. Sound familiar? Welcome. Why do you say this is the biggest housing disaster story Sydney has ever seen? Well, frankly, Kirsten, it's size and scale. Bathla, in terms of size and scale, would be second only to HIH, the collapse. This is really Sydney's Babcock moment in terms of housing. This is actually larger than the Babcock collapse back in 2009. And based on the numbers that they're reporting at the moment, it's circa $3.6 billion in debt. When you add the layers of subcontractors, suppliers, tax debt, and everyone else in the food chain, that number could be astronomically higher. So this is shaping up to be the largest corporate collapse this country's ever seen. Bathla grew into one of Sydney's major home builders, financing land construction and unsold apartments through an enormous collection of private loans. Private loans. The company accumulated approximately $3.3 billion in debt from more than 40 private credit funds down there. Some of those loans reportedly promised annual returns near 15 percent, which sounds attractive until we ask why a borrower needs to pay 15 percent. Bathla was exposed to nearly every pressure now hitting Australian developers. Construction costs have risen, interest expenses have increased, property demand has weakened, and prices declined for five consecutive months with Sydney experiencing the deepest fall. Now, private credit loans are frequently floating rates. So when interest rates rise, the borrower's expense rises with them. That can be manageable for a business with growing revenue and moderate leverage, but it's more dangerous for a property developer carrying billions in debt while sales prices are falling and projects remain unfinished. And it sounds, it sounds almost Chinese here. Now, Bathla entered insolvency, leaving lenders scrambling to recover money and homebuyers wondering whether their apartments will ever be completed. Administrators have a group of lenders was working on a deal worth around four million Australian dollars, potentially enough to buy time. But that's a small amount compared with the developer's total obligations. And Bathla is particularly important because of concentration. Australia's private credit market is estimated only roughly 200 billion Australian dollars, and as much as 60 percent of that lending may be connected to real estate. Now, in North America, property represents only 15 to 20 percent of private credit. So several Australian private credit firms have reportedly capped withdrawals as concerns about Bathla continue to spread. And it's the same pattern as B cred, only with a different trigger, an illiquid loan portfolio, investor anxiety and limits how much money can leave at once, this time relating to real estate. Now, the retreat in private credit matters more than just for fund investors. This is about the credit cycle and credit availability. Remember, private credit and shadow banking was one of the few sources of funds for middle market loans, for middle market lenders, for middle market borrowers to be able to borrow funds. Now that entire trend is reversing. The largest publicly traded BDCs have now experienced three consecutive quarters in which borrower repayments exceeded new loan originations. Their portfolios are contracting. That means private credit isn't merely suffering weak fundraising. It has less capital available to finance new deals, refinancing and business expansion. This is one way a credit downturn feeds directly into the economy. Companies that expected to refinance through direct lenders may discover that their terms have tightened. They may be offered smaller loans, maybe higher spreads, stronger covenants or possibly shorter maturities. The weakest borrowers may receive no acceptable offer at all. There's also a valuation problem here. BCRED, going back to BCRED, the net asset value there was reported to have declined from 2468 per share at the end of January to 2364 at the end of July, a fall of a little more than four percent. And management wonders why investors are tapping the exits. Now, that alone isn't catastrophic, but redemption payments for one quarter will be based on a net asset value at the end of September. We don't really know what it's going to be. Investors requesting cash don't know the final price at which those redemptions are going to be completed. So it kind of feeds into the investor withdrawal wave. And if portfolio valuations continue declining, leverage ratios can rise even without any new borrowing. A fund holding fewer assets at lower values has less room to make new loans or absorb additional losses. And the withdrawal problem, fundraising collapse and shrinking portfolios are all therefore connected. This is not one bad borrower creating an isolated loss. It is the direction of the entire system changing from expansion to literally contraction. Now, obviously, the private credit mess, the really the credit cycle overall is going to have a huge impact on interest rates and where interest rates are going. Interest rates are at a crossroad. That's why we're going to focus on that topic and focus heavily on that topic at Eurodollar University Live 2 coming up October 9th through 12th here in Palm Beach. The exclusive gathering limited to just 40 people where we're going to get everybody together to examine private credit, central banks, the theories, the fundamentals behind interest rates. Yeah, the Fed wants to hike over oil and gasoline. But what are the markets really signaling? What does the data actually say and what comes next? No noise, no surface level takes just rigorous discussion, the critical insights that you need and direct access to people asking the questions that matter the most and getting answers from a collection of people with valuable tremendous insight and expertise and who don't give a crap about everyone's agendas. So if you want to understand what's happening before the consensus catches up, there's only one way for you to know. Come join us in Palm Beach in October Eurodollar University Live 2.0 October 9th through 12th here in Palm Beach County. There's a link in the description for you to reserve your place and I hope to see you next month. Then there's an iron ore trader facing investigations, credit freezes, litigation and who knows what else they're going to find. Radiant became one of the largest players in global iron ore trading, reportedly building a business around 12 billion in annual revenue and handling approximately 5% of world trade at its peak. But lenders and counterparties are now examining whether documents used to obtain financing reflected genuine transactions. We've heard this story repeatedly over the last year. According to Bloomberg reporting, rebel bank investigators concluded as early as 2020. The series of finance trades involved fraud. Despite those concerns, Radiant continued expanding with support from banks, from credit funds and major commodity counterparts. Why? Credit boom baby, bubble behavior. Who cares about checking actual collateral when there's money to be made? There's gobs of money to be made doing things that in normal times would have been considered not just irresponsible, but plain stupid. Well, let's just let somebody clean this up years down the road because today we've got bonuses to get paid. Who cares who might have to sort out the mess down the road years later? But now it's down the road, it's years later and we see the same ridiculous mess coming up time. Again, this is the reason why there were withdrawals in the first place, the patterns of behavior. Now, commodity trading requires constant financing. Traders borrow against cargoes, bills of lading and invoices representing money owed by customers. Receivables financing is supposed to be relatively safe when the invoice lists a major credit where the company is the buyer. The lender assumes that even if the trader is the small one, the blue chip customer will end up paying its bill. But that protection disappears. Obviously, if the invoice doesn't represent the transaction, the lender believes A fund linked to Jefferies has now filed applications in London's High Court involving Radiant World and Sapphire Minmetals, including an application seeking an injunction that could lead to a broader lawsuit. Glencore reportedly recorded a provision of approximately $480 million, covering its own net exposure. And according to reported figures, Radiant and Sapphire owed Glencore around $951 million, while Glencore owed them approximately $471 million. Radiant has been fighting for survival while banks, commodity traders, and law enforcement agencies examine the relationships in the documents involved. This is what Jamie Diamond meant by cockroaches. One suspicious borrower is rarely concerning only because of that borrower. The real question is how many lenders financed it, whether the same collateral receivables supported multiple facilities, and whether similar underwriting practices exist elsewhere. Tri-color and first brands raise those questions first in private credit. Radiant raises them in trade finance. Different market, same late cycle vulnerability. Redemption limits at these private credit funds. They can buy these managers time, but what they can't do is manufacture more new demand. That is the central problem facing private credit right now. BCRED can truthfully say that loan repayments and inflows exceeded completed repurchases, but investors still request a withdrawal 10% twice the amount permitted. The industry can say redemption requests may be starting to moderate, but it still has a roughly $15 billion withdrawal backlog. Managers can tell us their loans are performing better than the public market prices imply, but new fundraising has dropped 82% and public BDC portfolios are shrinking. Every defense may be technically accurate while the broader direction remains unmistakable. Capital is retreating. Because private credit assets are not repriced every second, the full adjustment can take longer to appear. Stress emerges through declining net asset values, non-accruals, PIK interest, maturity extensions, restrictive withdrawals, and the big one as far as the cycle is concerned, lower origination. The absence of an immediate crash is not evidence that the cycle has stabilized. Private credit was specifically designed to absorb stress slowly. Public markets don't offer that same delay. The triple C's trading at 1053 basis points, that tells you that investors are demanding more compensation because they're increasingly worried about what's really going on in the credit cycle in the real economy, and that it's not like what everybody says. Publicly traded BDC shares provide another source of price discovery. Their underlying loans may be private, but their stocks trade every day. When those shares fall to large discounts to reported net asset values, investors are expressing doubts about earnings, dividends, portfolio marks, or venture recovery values, even as BDC shares have rebounded from their recent lows. They haven't really rebounded all that much. Now that doesn't prove every private valuation is wrong, but it does tell us that public investors want a margin of safety before accepting those valuations at space value. This is the link between public and private. Private credit investors are requesting cash. Triple C bond investors are demanding far more yield. Australian funds are restricting withdrawals after a property insolvency. Trade financiers, they're examining allegedly false invoices connected to a major iron ore trader, and these are not identical events, but they are exactly the type of events that accumulate when the credit cycle turns. Higher rates expose weak interest curves. Slower growth exposes optimistic revenue assumptions. Falling asset prices weaken collateral. Reduced inflows, they expose these liquidity mismatches and fraud. Fraud becomes more visible and people start looking for fraud and appreciating fraud when money stops coming in. A year after tricolor and first brands, most people have been led to believe that the private credit scare has passed. It didn't. B credit has received another 10% redemption request and limited investors to 5% for the second consecutive quarter. Private credit funds face a roughly $15 billion withdrawal backlog. Non-traded BDC fundraising has collapsed by 82%. The largest public BDC portfolios have contracted for three consecutive quarters. Triple C spreads have climbed to 1,053 basis points. Australian private credit funds are restricting withdrawals as bathless $3.3 billion debt pile moves through insolvency. And Radiant World may be another cockroach connecting allegedly false Now, none of this guarantees a 2008 style crash. In fact, that's not what we're looking for. B credit is not a bank. Redemption gates are part of its structure and many private loans are going to continue paying normally. But not 2008 is not the same as nothing is wrong. The important signal is direction. Withdrawals remain elevated. Fundraising has disappeared. Credit portfolios are shrinking. The weakest public borrowers face distressed spreads. And new cockroaches continue appearing in places where leverage and bubble behavior overlap. The private credit mess, the bust, didn't go anywhere. It didn't disappear. The cycle has shifted from crazy to clean up.