Short Sellers Bet Against Private Credit Lenders
From Yahoo Finance: 2025-05-03 15:00:00
Hedge funds are betting on trade wars, economic shrinkage, and borrower strain to impact private credit in the US, with short sellers making $1.7 billion on wagers against major direct lenders like Apollo and Ares. Volatility, policy uncertainties, and concerns over credit quality are causing share prices to fall.
Alternative asset managers are at risk in a recession, as revenue and cash flow decline, increasing leverage. Competition among private credit funds may push returns down, with focus on weaker companies making them vulnerable to economic downturns. Business-development companies may have solid capital cushions if a recession hits.
Despite concerns, some remain optimistic about direct lending valuations, though only 40% of private credit funds report using third-party appraisals. There are worries that lenders may be camouflaging problem loans, leading to potential overstatements of valuations. Creditors are turning to costly payment-in-kind notes, raising doubts about valuation consistency.
Bond issuance in the US picked up as sentiment stabilized, with notable deals from Alphabet and Goldman Sachs. Whirlpool Corp. was downgraded to junk status due to tariff pressure and high debt. Apollo Global Management and investors bought bonds to offload risk from bank loans to private credit funds.
Nscale, a startup less than a year old, is seeking to raise $2.7 billion for AI infrastructure with a partnership with ByteDance. Saks Global Enterprises’ bonds sank after a call with management failed to reassure investors. Clearlake Capital Group is seeking financing for its Dun & Bradstreet buyout, while Carlyle Group nears a bond sale backed by music rights.
Sunnova Energy International is in talks with creditors for potential bankruptcy financing. The sale of DNA data bank 23andMe faces delays, and S&P downgraded Conair Holdings due to increased tariffs. Moody’s cut Whirlpool Corp.’s credit grades to junk, citing weak demand. S&P no longer considers cutting Boeing Co.’s debt to junk status.
Brad Dunkin joins Morgan Stanley, Adam Piekarski forms Derby Lane Partners in real estate credit, and Vikram Rai leaves Wells Fargo. JPMorgan Chase hires Rommel Medina and Ty Savastio.