Status and outlook of the expanding private credit market

1.Due to the bankruptcies of Tricolor and First Brands, U.S. regional bank stocks have declined

• Since mid-September, the stock prices of U.S. regional banks have been falling (Figure 1). One of the triggers was that on September 10, Tricolor Holdings (hereinafter referred to as “Tricolor”), a provider of subprime auto loans, filed for liquidation under Chapter 7 of the U.S. Bankruptcy Code, and on September 28, auto parts company First Brands Group (hereinafter referred to as “FBG”) filed for bankruptcy under Chapter 11 in quick succession.

• The bankruptcy of Tricolor was triggered by an increase in loan delinquencies and concerns among its partner banks about fraudulent entries in the financial data provided by the company, which led to the suspension of credit lines. FBG is said to have gone bankrupt due to an increase in debt and worsening cash flow resulting from rapid business expansion, but in October, there were indications of possible fraudulent loan acquisition associated with the sale of accounts receivable. In the background, there is a complex debt structure using supply chain finance and other methods, and U.S. authorities are proceeding with investigations to clarify the full picture.
• The reason the bankruptcy of these two companies, which are mid-sized auto parts manufacturers and auto loan companies, has led to a decline in regional bank stocks is the presence of “private credit,” which has been expanding in recent years. Both Tricolor and FBG had expanded their businesses through borrowing from private funds.

2.Private credit has expanded significantly in recent years, supplying risk money

• Private credit refers to corporate credit provided by non-banks, outside the scope of traditional corporate bonds or commercial bank loans, and is offered through direct contracts between two parties or small-scale “club deals” (IMF 2025). The main users of this credit are mid-sized and small companies with limited ability to raise funds through bonds. Major investors in private credit funds include pension funds, insurance companies, sovereign wealth funds, hedge funds, and wealthy individuals. It is one of forms of funding provided by financial institutions other than traditional banks and is also called non-bank financial intermediation (NBFI) or shadow banking.
• The total size of non-bank lending is estimated at about $239 trillion (as of 2023), and the share of NBFI in the world’s total credit has risen to about 50%. Of this, private credit accounts for $2–3 trillion (Figure 2), and along with private equity, which are about $10 trillion in size, has been expanding in recent years. As capital regulations on traditional banks have become stricter, transactions have increased. According to estimates by the European Central Bank, as of 2024, 70% of private credit fund investments are in North America, 20% in Europe, and 10% in other regions.

• Private credit offers benefits such as making fundraising easier for small and medium-sized enterprises and expanding investment options for investors. On the other hand, if companies that have received loans go bankrupt due to increased interest burdens, there is a risk that credit concerns could spread to the investment companies that set up the funds and to the banks that have lent to those companies or funds. In the financial markets this time, it is believed that the risk of such credit concerns spreading has increased.

3.Private credit investment unlikely to heighten financial system risks

• Bank of England Governor Andrew Bailey, when asked about this matter, stated that it is uncertain whether this is a “canary in the coal mine” leading to financial system risk or a special case, but emphasized that it needs to take “very seriously,” and announced the implementation of stress tests for British banks. In addition, JPMorgan Chase CEO Jaimie　Dimon also mentioned the possibility that this case is just the tip of the iceberg, raising concerns.
• On the other hand, Mr. Henry Kravis, co-founder of KKR, a major investment company that manages private credit funds, argued, “There will be no systemic risk stemming from private credit as an asset class.”
• During the global financial crisis that occurred in 2008, the freezing of redemptions of subprime-related investment funds by BNP Paribas in 2007, looking back now, was a “canary in the coal mine.” However, this time, there has not been a direct spillover such as an outflow of money from private credit funds. Also, considering that both the Tricolor and FBG cases may involve fraudulent transactions, it is difficult at this point to believe that U.S. financial instability triggered by investments in private credit funds will rapidly increase.

Author’s Introduction

Kenichiro Yoshida

Chief Researcher, Global Intelligence and Research Office, Hitachi Research Institute

Engaged in research on economic and financial conditions in the United States and Europe. After graduating from Hitotsubashi University's Faculty of Commerce, he worked at Mizuho Research Institute and served as the Chief Representative of Mizuho Research Institute's London Office before assuming his current position in 2021.