Private credit roundup: Downtime and depreciation

LONDON, May 15 (Reuters) - Private credit funds ‌have begun marking down ​their ​loan books in a recognition of investor concerns over credit quality and broader market sentiment around artificial intelligence disruptions.

A Reuters review of filings from 14 major business development companies (BDCs), that ‌lend in private markets mainly to small businesses, found broad first-quarter markdowns in private ⁠credit portfolios.

The aggregate fair-value-to-cost ratio fell 103 basis points to 98.55% at end-March, leaving investments marked around $1.2 billion below amortized cost. ‌Managers attributed some pressure to market-wide ‌spread widening rather than solely borrower deterioration, but the figures underscore investor concerns about AI disruption to software borrowers, non-accruals and redemption pressure.

Significant declines in fair values of loans were at CION, Ares, Blackstone ​Secured Lending and Goldman Sachs BDC, the study found.

Separately, MSCI data showed more than a tenth of private-credit loans have been marked down by at least 50%, a level MSCI says is typically ⁠associated with deep distress or restructuring risk.

It said the stress is concentrated in smaller private-debt funds, where 13% of loans were valued below ​50 cents on the dollar.

In a sign of continuing funding pressures at BDCs, Blue Owl saw a 95% drop in new investments at its biggest credit fund ​for retail investors, with the Blue Owl Credit Income Fund ‌accepting just $26.4 million in subscription payments on May 1, compared with $480 million at the same time last year.

HSBC said on Friday it remains committed to its private credit ⁠investments, after an earlier Financial Times report that said the lender had paused a $4 billion plan to invest in its own private credit funds. This comes in the wake of HSBC disclosing a $400 million loss from the collapse of ⁠UK lender Market Financial Solutions, a bridging lender that foundered when it was discovered it had pledged assets as collateral ​for multiple lenders simultaneously.

Goldman Sachs' private credit fund experienced a 3.7% decline in value during the first quarter owing to an increase in unrealized losses, while private markets giant KKR said it plans to inject $300 million into FS KKR Capital ‌as losses and credit problems mount at the private-credit fund.

The Financial Times reported on Wednesday Britain's Financial Conduct Authority has discussed overhauling reporting requirements with major private-credit ‌groups, a sign of how regulators are striving to improve transparency around private credit.

The talks involved firms such as ⁠Apollo, Blackstone, Carlyle, Goldman Sachs Asset Management ‌and KKR, some of which have ​already agreed voluntarily to provide data to the Bank of England for a stress test of the global private equity and private credit industries.

(Compiled by Vidya Ranganathan; Editing by ‌Andrew Heavens)

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