# Grand Juries Reach Private Credit Insurers as Banks Retake Lending Ground - Private Credit & Alternatives - Week of July 29, 2026 > Private credit and alternatives newsletter for the week of July 29, 2026. Federal grand juries subpoenaed two life insurers over how they disclosed private credit holdings, senior operators from Blackstone, Golub Capital, TPG Twin Brook and Davidson Kempner conceded stress on the tape while recasting it as a shakeout, new direct lending fell about 40 percent in a quarter, and the banks charged back into commercial real estate lending for the first time this cycle. ## Private Credit & Alternatives ### Week of July 29, 2026: Grand Juries Reach Private Credit Insurers as Banks Retake Lending Ground --- Last week the bears finally named the place they thought private credit would break: not a fund, but an insurance balance sheet. No insurer answered. This week, someone else did, federal prosecutors. Two life-and-annuity insurers have received grand jury subpoenas over how they disclosed billions of dollars of private credit holdings, with the securities regulator reportedly running a parallel investigation. That is not a short-seller's slide deck. That is a courthouse. And then something else happened, which is that the operators finally showed up. Three of them, on three different podcasts, in the space of a week: the president of the world's largest alternative asset manager, the co-CEO of one of the oldest direct lenders, and the founder of a firm that has been lending to small companies for twenty-five years. What is striking is that not one of them denied there is stress. They all conceded it, then reframed it, as a shakeout that will thin the field and reward whoever survives. "A tectonic Darwinian moment," in one of their words. Meanwhile two numbers moved in opposite directions, and together they may be the most important thing that happened all week. New private lending is slowing hard, down roughly 40% in three months. And the banks, after two years of refusing to touch commercial property, have come charging back into that market at a pace nobody forecast. For the first time in this entire cycle, the share is moving the other way. Private credit is the one losing ground. ## TL;DR - The insurance bear case stopped being a theory. Delaware Life Insurance and Clear Spring Life and Annuity have reportedly received federal grand jury subpoenas over whether billions of dollars of private credit holdings were properly disclosed as backing for affiliated ventures, with the Securities and Exchange Commission reportedly investigating in parallel. No charges have been reported and an investigation proves nothing. But regulators are now hunting for exactly what the skeptics said was hidden: leverage and undisclosed promises layered around private loans. Alongside it, the funding conveyor belt is visibly slowing, new US direct lending fell to $44.76 billion in the three months to May, about 40% below the roughly $75 billion of the prior quarter, and PIMCO has told clients "the credit loss cycle is upon us." - The operators came to the microphone and conceded the stress, then reframed it as a culling. Golub Capital's co-CEO put a number on it: the Fitch index of private credit defaults is running "a little more than 2x normal," and he expects consolidation, firms disappearing, and continued redemptions from retail funds. TPG Twin Brook's founder was blunter about who is leaving: investors asking for their money back "didn't belong there in the first place." Blackstone's president, sitting on a 26% jump in quarterly earnings, simply argued the market has the firm mispriced. - The reversal nobody saw coming: banks are taking commercial real estate lending back from private credit. Bank of America and U.S. Bancorp each grew commercial property loan balances about 8% last quarter; PNC grew 15%; Truist grew 25%. Total US bank exposure to commercial real estate hit $3 trillion in June, and $455 billion of new loans were written in the first quarter alone, 80% more than a year earlier. Data centers and apartments are pulling the banks back in. That is a headwind for the private lenders who filled the gap, and it quietly shrinks the pile of distressed assets the vultures were counting on. ## What's new ### 1. The government starts looking for the hidden leverage, and Amazon shows how far the chill has spread The most consequential item of the week came on [Eurodollar University](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOiXDMO-2Fp76u4WH8MflH8oBt793qZwCKCVLiID8pd-2FHSWVc7B3BsDg3Cn3hIZMJNXaVUiSE-2FrkuhpwMbZvhysiyYhZhHl8dcWiILhw5VSRd1ng-3D-3DekEm_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXvM6mrdFVlc47U5RWXtRnwhAnAOIUuKwsltHixfqafCvnYSHhTH8QrISmhF99N44zO3GmcWr8itLXSiFPdYGevATbv8QUPftGNuN3fakUeXEdSQcm1mJFrZV-2FK0W0-2Bsq-2Bw0d1emYla19OgWN4qze5VZUbabDV5LuWIHyoo81C6YQ-3D-3D) (Jul 22), where host Jeff Snider tied together three things that had been floating around separately. Start with the news: "Delaware Life Insurance and Clear Spring Life and Annuity received federal grand jury subpoenas concerning whether billions of dollars of private credit holdings were adequately disclosed as backing for affiliated ventures. The SEC, the Securities and Exchange Commission, was also reportedly conducting a parallel investigation." He was careful, and so should we be: "No criminal charges have been reported, and an investigation doesn't establish wrongdoing." But he was right about why it matters. The question the authorities are asking is precisely the question the skeptics have been asking for a month, "whether private assets carry commitments, relationships, or encumbrances that outsiders can't easily see and appreciate." His framing of the next phase: "That points toward the central question of the next phase: where is the leverage?" It can hide at the borrower, inside a private-equity-owned company. It can hide in fund-level borrowing, subscription lines, or NAV facilities (loans taken out against a fund's own portfolio). It can hide in warehouses, joint ventures, offshore vehicles, and affiliated entities. And it can hide in guarantees, which he described as "another form of contingent leverage, an obligation that appears harmless until multiple claims, they all arrive simultaneously." His pointed observation was about timing: "why suddenly, right now, everyone is so concerned about something that has been going on for years." The second thread was the lending drought, and the numbers are stark. Citing PitchBook data reported by Reuters, he noted that "US-focused direct lending issuance fell to $44.76 billion during the 3 months ended May 2026. That was approximately 40% below the nearly $75 billion recorded in the first quarter." Lending to private-equity-owned companies "dropped by nearly 37%, down to $28.5 billion," and lending tied specifically to buyouts "fell approximately 34% to $15.15 billion." Why that matters is the part people miss. A credit boom runs on a conveyor belt: money comes into funds, funds write loans, buyout firms do deals, and old borrowers refinance. "When that flow slows, weak credits lose an important escape route. Debt that could once be refinanced must instead be repaid, extended, restructured, or even marked down." Or, more simply: "once lenders become overly cautious, time becomes the enemy." The third thread was Amazon, and it is the one that should make everyone sit up, because Amazon is not a distressed borrower by any definition. In July it sold $25 billion of bonds across eight slices with maturities from three to forty years, to fund its cloud and artificial-intelligence build. Orders initially peaked around $62 billion. Then the banks running the sale cut the yields on offer, and orders fell back to roughly $41 billion, meaning demand was only about 1.6 times the size of the deal. For context, US high-grade bond sales this year have averaged orders around four times the deal size. And Amazon still had to pay up: Bank of America estimated its longest bonds came with an extra 18 to 21 basis points of yield (a basis point is one hundredth of a percentage point, small, but on billions of dollars held for decades, as Snider put it, "it's a big effing deal"). His conclusion is the line of the week: "Amazon is not the epicenter of the credit problem. It is the lighthouse showing how far the change in financing conditions has already traveled." The pressure is supply. Artificial-intelligence-related debt issuance in 2026 has reportedly hit roughly $270 billion by July, nearly double all of 2025, with Amazon, Alphabet, Meta, Microsoft and Oracle accounting for about $194 billion of it. Amazon alone has issued about $107 billion of bonds over the past year, more than any other big technology company. "Even the safest bond becomes less scarce when similar issuers repeatedly return with tens of billions of dollars in new debt." And laid over all of it, a warning from one of the largest bond managers in the world: PIMCO has said "the credit loss cycle is upon us" and is steering away from lower-quality debt, private credit included. ### 2. Golub's co-CEO: this is a culling, and here's the number that proves there's stress The most valuable operator interview of the week was David Golub, co-CEO of Golub Capital, a direct lender with more than $90 billion under management, in a market host Lisa Lee sized at $2 trillion globally, on [Credit Exchange with Lisa Lee](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOjBaPPnfYlKPAz668HU0c4IVRaP2-2BtgaCHTQcWzFZlENSJOR16F-2FZP48Qy6-2BcHuZrhKcDhDAIhZ-2FLQil3hkG0AtsmkeHtxbvwahZUtIuk8PHw-3D-3DLUbr_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXvM6mrdFVlc47U5RWXtRnwhAnAOIUuKwsltHixfqafCjeDexiLzG2-2BzJ-2BBjI35tk1CXoFvh5nTfrisQPKSKnl4AL9lAFnTjMvJrKmgKZB-2FF-2F7f83cC4cSjVuAa3BfafxfwNujo2w2i-2BetAjtZlHv5GkMvBYwfUHtVBBsPAUf6r9w-3D-3D) (Jul 24). He did not spin. Asked what he sees, he pointed to an independent yardstick: "Fitch does a very nice index of private credit defaults. And it's running at 2x, a little more than 2x normal. So, that's, I think, a very good indicator that we're in a period of higher than normal credit stress." His own borrowers are holding up, the firm publishes a quarterly report on how the companies it lends to are actually performing, and it shows "continued, reasonably good growth. It's not great... It's slower than it was two years ago, but it's resilient growth." The important word he used next was dispersion: "We're seeing very big differences between how some private credit managers are doing and how market-leading firms with real competitive advantages are doing. And I think we're going to continue to see that." His forecast is a thinning of the herd, in both private equity and private lending. On the easy part: "Persistence of some credit stress for a period of time. Persistence of some elevated levels of redemptions in non-tradeds." On the harder part, and this is the striking claim, he argued private equity is far more concentrated than anyone assumes. "There's an old joke. I'm not sure if it's true that there are more private equity firms in America than McDonald's. But I think that's misleading. If you look at the data, the data is that the top 200 firms today are raising such a disproportionate share of the new capital being raised in the industry that they control 91% of the dry powder... So, 200 firms control 91%. That is not a fragmented industry." Because direct lenders serve buyout firms as clients, he thinks that concentration is about to force the same concentration on lenders: "we're going to see in the coming 10 years the development of a core group of private equity leaders and a core group of private credit leaders. And in both cases, they're going to be at a scale that we've not previously seen before." Two more things he said deserve attention. First, on the semi-liquid retail fund, the vehicle that lets ordinary investors in but caps withdrawals at roughly 5% of the fund per quarter, he neither defended it as flawless nor apologised for it. "Is it a perfect... I'm unaware of a single investment product that's perfect. I think this one addresses some investors' needs well. I think it also has some flaws. So maybe it's time to lab it, maybe improve it, come up with a different mousetrap. But in and of itself, there's nothing inherently flawed. It's flawed like any other investment vehicle." Asked directly whether he would put his own neighbour or cousin in one, his answer was: "So not only would I, I do." Second, and this is the headline the host correctly seized on: private credit loans are being traded, and Golub has been doing it for a decade. "We've had a capital markets desk and a sales and trading team for 10 years. There's nothing new about this. And it's not bad either." The volume is real: "We've done over $2 billion of private credit trading in the first half of 26. It's a record level for us." His prediction is that the wall between private credit and the public loan market erodes, "some of the distinctions that we've historically drawn, like the distinction between private credit and BSL, I think those distinctions are going to start to fade." On the deal drought, he expects a thaw: "I think we will start to see in the second half of 2026 and into 27, we'll start to see some building momentum in private equity M&A." His biggest worries, for the record, are oil prices, because they feed into fertiliser, food and everything that gets transported, and the possibility that official inflation data is not telling the true story. ### 3. A twenty-five-year lender on why the redeemers "didn't belong there in the first place." The most quotable operator of the week was Trevor Clark, founder and managing partner of TPG Twin Brook Capital Partners, on [InsuranceAUM.com](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOiqHiDpWEhcZxkBLg90fKYM464A31iqqdxGK-2BTxbKMRaVNCutlqBj8YrtNONd9Uy4bP3ksh9UK21vauQs-2Bzq0F3G76h8D4Q7qLgwJnF6Nl-2BwA-3D-3Dqsm9_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXvM6mrdFVlc47U5RWXtRnwhAnAOIUuKwsltHixfqafCjytNOJ8hXZ97eBhl-2FJoU-2FeMGaEF-2FUBBGdZ-2BxGDVw-2FEEJGFLxJILGMV3Z1OuXnV8RGxVPMKhYwIg1eZcqvIFHVHhlejp65FCOhBK-2FYawO6xfHhwBUcwYsPBXt8kTifGzVw-3D-3D) (Jul 29). Twin Brook lends to smaller companies, the "lower middle market", and Clark has been doing this for thirty years, running a book of over 310 borrowers and $30 billion. He was openly irritated by the coverage: "sensationalizing news, redemptions, AI impact... People want clicks. People want to get eyeballs... There's a little bit of fact in there, but there's a lot of fiction associated with this as well." His argument on redemptions was the sharpest thing said all week, and he delivered it as an analogy anyone can follow. "When you see headlines and you see people starting asking for redemptions based on that, I would argue that they didn't belong there in the first place. They didn't know what they were doing. They didn't know what they were buying... You bought an asset class that you're getting paid for illiquidity. And then you go, I want to sell this. I mean, I'll tell you what, go to your car dealer. Go buy a brand new whatever it is. And then drive it off the lot, go to McDonald's, come back and go, hey, I want to sell this back to you. Like that's not going to be a good number... When you get more liquidity, the premium goes away. Like this is like finance 101, right?" On software, the corner everyone is worried about, he made a distinction that cuts against the panic: the industry isn't the problem, the loan structure was. "Software is not a bad industry. People got sideways because you did a bunch of recurring revenue-based loans or enterprise value loans that you didn't have the cash flows to actually meet the current cash burden of it. And that's how they got sideways." His own protections are old-fashioned and specific: no single loan more than about 1% of the portfolio, lending only against actual cash flow rather than adjusted figures, real financial covenants, and sitting in the borrower's revolving credit line so the firm can watch cash move in and out daily. He contrasted that with the upper end of the market, where a lender may have given away covenants, sits outside the revolver, lends against adjusted cash flows, and is stuck in a large lender group: "when there finally is a payment default, I've got a big group I've got to try to coordinate with to take action. That's tough." He also volunteered the most concrete answer yet to the "can you trust the marks?" question that has dogged the industry. Some managers, he said, take "a subset of my portfolio, and once or twice a year, that subset, I'm going to have a third-party valuation." Twin Brook's approach: "Every single name, every single quarter, I'm going to have a third party come in." And he gave credit where the critics rarely do: "The world of the BDCs has been actually wonderful because it started to bring a consistency in reporting that did not exist prior to that." Two forward-looking points from him are worth flagging. First, a slow-burn problem almost nobody talks about: private equity firms are holding companies far longer than they used to. "You go from the average private equity hold time of an asset of four years to today, it's over six years." Loan covenants typically tighten each year, so a company held six years faces a much tighter test than one held three, regardless of whether anything has gone wrong. "A covenant default is not a payment default, but it definitely shows in perception a higher level of stress just from hold times without really kind of thinking through a performance change." Second, on the shakeout: "I think there's going to be fewer direct lenders two, three, five years from now because people are going to realize you didn't need to have 2,000 plus." And for insurance investors specifically, his message was that the industry's instinct to equate size with safety is wrong: "that mindset of larger company always safer, I think has been debunked." ### 4. Blackstone's split screen: a 26% earnings jump, seven gigawatts, and a president arguing the market has him wrong Jon Gray, president and chief operating officer of Blackstone, made the bull case in person on [Bloomberg Talks](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOh2rJb7nXLaBAUQPNb94oxGQSiYb3g0PNqsedIM6lOQG8sF7xceuZNCkIQvfwk-2FxI2qCdfmmIELwZCRXWxhiMbpShZk25HaysPaX6gfaKVK9w-3D-3DYeDT_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXvM6mrdFVlc47U5RWXtRnwhAnAOIUuKwsltHixfqafCpkZezJt9hMwc6D1341CPFUPx58OfsePZX1p3BvCgQagExoN77bFi36B5vedg-2BzqoF8t0GlA5o5x8uNx-2BXR1RGfFKI4m0-2BziWSMmA-2BbG4OeJIw2lCi9U0kBFJFCZ1pujoQ-3D-3D) (Jul 23), and the numbers behind him were genuinely strong: earnings up 26% in the second quarter, "on top of 25% last quarter." He credits a deliberate bet placed years ago, "It really started for us back in 2021 when we bought QTS, this big data center business. And it gave us a front row seat in terms of what's happening around AI." The firm then leaned in beyond property, into "neoclouds, large language models, electrical equipment, energy." In the quarter just gone it announced partnerships "with Google and TPUs, with Broadcom and financing chips, with Anthropic and deploying their technology," and it has been selling into strength: "one of data centers for $8 billion" and "a battery storage company we sold for $7 billion." The leasing figures are the ones to write down. "We leased one gigawatt in 2024. We leased two gigawatts in 2025. And this year, we're on pace to lease at least seven gigawatts, we believe, which is more than 100 billion of data centers and a couple multiples of that in terms of chips that go inside." A gigawatt is roughly the output of a large power station; seven of them is an extraordinary step up. Asked what happens if the technology giants pull back on spending, Gray was straightforward, "If there is a slowdown, then, yes, the pace of development would slow", but drew a distinction with the last infrastructure mania: "When you think about the telecom boom in the 90s where people built fiber, something like 20 times more than was actually needed. In this case, we're only building to demand and long-term contracts from very large creditworthy companies." Pressed on whether Blackstone has effectively become a single-theme bet on artificial intelligence, he pointed to the rest of the firm, real estate, secondaries, hedge funds, credit, and buyout holdings he described as "lots of regular way businesses like Jersey Mike's", and then made his valuation pitch: "we're a company that operates with virtually no capital. We don't have any insurance liabilities. We have virtually no debt... Today we're yielding 4%, which is one of the highest dividend yields in the S&P. And yet... today we're trading at a discounted market multiple... I do think the market will change things. A re-rating will come. Sometimes we've got to be a little patient." Note that "no insurance liabilities" line. It is a quiet dig at the rivals whose balance sheets are now attracting grand jury subpoenas, and it tells you Blackstone knows exactly which way that wind is blowing. His most useful observation was about which companies can currently be sold and which cannot. "What we've seen is really a bifurcation. If you leave AI to the side, what we're seeing in terms of liquidity is for traditional, let's call it AI unaffected businesses, there's pretty good liquidity out there. If you're a medical supply business, if you're a fast food chain, people want to own those kinds of businesses." Where it is hard: "professional services, information services, software, where people are saying, I don't know what this company is going to look like 5, 10 years from now. Now, in many cases, these are great businesses. They're deeply embedded. They will become agentically forward and they'll succeed. But for now, multiples have come down and you're seeing less M&A, less financing activity, less IPOs for these businesses. I think that's going to stay for a while." Now the other half of the split screen. Steve Eisman, reviewing the same results on [The Real Eisman Playbook](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOiMOpDWef2IKeNPoXTZPmiIKdAu5IiecnPTM7E3IDRVH-2FhBiYO-2BeBFNbRCRpapXLmoeF0kci1mAz5Ji4Evmd2EbPD-2FfvsUjUOB4g91M13M9bw-3D-3DSswr_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXvM6mrdFVlc47U5RWXtRnwhAnAOIUuKwsltHixfqafCio2u-2FaM-2FxzaG113UytfAsnTfBEAdAoQNDMMNHLaaYEzWSnyGQFu9ztC9CEHcSsHSaK-2FconWXevuhRwwPtYSHvOOUJWgIXa0XbBtIR8TWt5It3wso2YvvMsNSVpZX0OvZQ-3D-3D) (Jul 24), called them "good, but also mixed." Blackstone beat expectations, "earnings per share of $1.52 versus $1.21 last year and versus $1.36 expected", on "higher transaction revenues and strong performance fees thanks to better-than-expected realizations," with "very strong" fundraising "at $68 billion." But he flagged what was underneath: "slow base management fee growth and only modestly positive performance in certain asset classes like real estate and credit." And he named the two problems the quarter did nothing to fix: "the time it takes to sell companies and give investors their money back keeps lengthening, and Private Credit's problems with software won't really start to matter until next year when the refinancing cycle begins." His closing note is the one that lingers: "on the conference call, management bragged that it is the biggest financier of AI data centers. Given the intensity of the current AI debate, that may or may not prove to be a great bet." That debate got noticeably less friendly the same week. Eisman's read of the market mood: "the terms of debate on AI have truly shifted. A year ago, it was all rah-rah for AI. When companies raised their capex budgets, the market cheered." Not anymore. Alphabet lifted its 2026 spending plan on artificial intelligence "from $190 billion to $205 billion" and its free cash flow, the cash left after running the business and paying for investment, "turned negative. It was negative $5.9 billion." The stock fell 7%. Tesla's capital spending rose to $5.8 billion and its free cash flow went negative too, "for the first time in 2 years"; the shares fell 14.5%. Even ServiceNow, which Eisman calls "one of the best software companies in the world" and which grew revenue 24% to $4 billion, fell almost 4%, because, as he put it, "fighting the AI narrative is like fighting a ghost." (These are Eisman's readings of the prints, offered as commentary rather than company disclosure.) ### 5. Davidson Kempner does the arithmetic on how everyone ended up in the same trade The clearest explanation of *why* private credit has a software problem came from Tony Yoseloff, managing partner and chief investment officer of Davidson Kempner, on the [Money Maze Podcast](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOikRsRSVnu-2F-2BfKbQ7TIBvqZSOiUFFXFIGAa5kwPMy1Kw6qgDycKiKdtmJPUGIzRcpMxn5540LinSlaYU-2FEh8cHjHP7Qkks773q39ZZCZ80tbw-3D-3DMjfy_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXvM6mrdFVlc47U5RWXtRnwhAnAOIUuKwsltHixfqafCgDJQ8r1jMc2-2Fn26RDkQNlb9kocrdCDZtOtmLA6h7TCD-2Fq-2FWS-2BuYCwu76p-2BfvJYRM8hEJSmwRA0lrcDL0f8zVvWKyLUssSbFOWWCp8Lf2hmZ9h-2FjfUs5g1-2BH-2FGnpRN7XYA-3D-3D) (Jul 23). The mechanism is almost embarrassingly simple. Direct lenders lend mostly to buyout firms. So whatever buyout firms buy, direct lenders finance. "40% of private equity dollars have gone into software businesses the last several years. And, you know, low to mid-30s percent of direct corporate lending dollars have gone into software businesses because if your clients are private equity firms, you have to follow your clients." His verdict on the result was flat and unhedged: "software is in peril right now. There really is no getting around that as an asset class." Then he made a point I have not heard anyone else make, and it explains the strange gap between a stock market at record highs and a private market full of anxiety. Public investors own the winners and the losers of the artificial-intelligence shift at the same time. "The public markets have substantial exposure to AI in portfolios. And so even while your software investments haven't done very well, you've more than made up for it in other areas, which is why the S&P has been around an all-time high." Private equity and direct lending portfolios have no such hedge: "If you're investing in private equity strategies or direct corporate lending strategies, you don't really have exposure to AI in that way." The AI upside lives in venture capital and growth equity, not in the buyout funds holding the software companies being disrupted. On lending standards, he confirmed the erosion and explained the economics of it. Ten years ago direct lenders competed on "speed and one-stop shopping," and charged for it. Competition took that away. "The covenants that exist in larger cap direct corporate loans are substantially similar to what you would have in public markets", and in public markets, "90 percent of the documents" are covenant-light, meaning they contain few of the tripwires that let a lender intervene early. His explanation of why lenders surrendered terms rather than price is unusually honest: "as a lender, you're not giving something up on price. You're giving up a term and condition that, you know, in a smaller subset of your deals is going to matter. But in a larger subset of deals, when you get paid back, it's not going to matter. So it was an easy give." He also punctured the industry's favourite claim, that private lenders stick together where public ones turn on each other. "If you've got a syndicate with 28 private lenders in it, is it really that private anymore, right? Is there much more of a risk that a few folks are going to break ranks? The answer to that is yes." His most sobering message was about how long the logjam lasts. Buyout funds typically must clear an 8% return hurdle before the managers earn their profit share, and "the model of private equity means that you always need to raise another fund to be in business." Both incentives argue for waiting rather than selling cheap. Add loans that "don't make sense today based upon debt to LTV or interest coverage tests," documents that are "very porous," and sponsors who "have time and... flexibility," and you get paralysis: "I think it could take a lot longer than people think to work this through." He expects real contraction in the number of buyout firms, and a barbell outcome: "It's like the club world. The clubs that people want to be in, everyone wants to be in. And the clubs that people don't want to be in, no one wants to be in." As for his own opportunity, he thinks direct lenders are about to behave like the banks they replaced: "if you view direct corporate lenders essentially as the new banks, right, they will have workout groups... You're not going to sell everything. You are going to choose to work some stuff out." That creates sellers, of whole loans, of pieces of capital structures, and buyers like him. One more thing worth noting: he insists this is mostly an American problem. "It's much more of a U.S. story, by the way, than a European story." ### 6. The plot twist: the banks are back, and they are taking commercial property lending off private credit Nobody predicted this one. On [InvestTalk](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOhMhe6NINDEKQgXeJbIxwSYn2coGhcVdsu5R4iFg5YhSlzX1Ai8FGlIBbSCU66Aa7nAGtUVu1qrvie3JKkZWq4GSO3bXXcuuTxOGjyMRaLvJg-3D-3DoYrG_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXvM6mrdFVlc47U5RWXtRnwhAnAOIUuKwsltHixfqafCnC89oPCsJolTwdmlMzgVc3euu4gp8uIXSjmDucAXaurwWnVtgYcCBnpxsxs9tl3QGQySyW3xVrm1tK575sswIFSbw3ZNZgtUnoTkkFEJj0SVttQSjd48Gh1oWJtSZPutg-3D-3D) (Jul 29), co-host Luke Guerrero laid out the reversal. For about two years the big banks had gone "pencils down" on commercial real estate, empty offices, rising rates, loans coming due, defaults looming, and "they left the field to these private credit lenders, these alternative managers, who essentially stepped in to fill the void." That era, he said, is over: "Banks are back. And they're not really tiptoeing in. They're just diving headfirst." The evidence is specific. "Both Bank of America and U.S. Bancorp increased CRE loan balances by about 8% in Q2. PNC grew its book by about 15%. Truist, 25%." A Federal Reserve report showed total US bank commercial property exposure hitting "$3 trillion in June... about 3% year-over-year growth." And the Mortgage Bankers Association counted "$455 billion, with a B, in new CRE loans originated in Q1 alone. That is 80% higher from a year ago." As he put it, "that's not really a slow and steady recovery. That is a massive spike." What is pulling them back is not a broad property recovery. It is two things. Data centers, "data center lending barely existed five years ago. Now it's one of the most sought-after property types because the tenants, who are they? They're Microsoft. They're Amazon. They're Meta. They have investment-grade credit and the longest-of-term leases." And apartments, because "people need places to live regardless of the economy." Offices remain frozen below the very top tier: "anything below that is still pretty much unfundable because the vacancy rates still have not improved enough to change underwriting and math." The implication is the important bit, and it runs two ways. Banks competing again means a price war, which "inherently... is going to compress margins." Guerrero's read: "It's also a headwind for private credit managers who fill the gap. And it changes the dynamics around this idea of distress. Because with more capital available, the wave of forced sales that doomsayers predicted may be a bit smaller than expected." In other words, the same capital that squeezes private lenders' returns also rescues borrowers who would otherwise have been forced sellers, which is bad news for anyone who has raised a fund to buy distressed assets cheap. He also offered a warning that pairs with the Amazon bond story. The credit market is repricing artificial-intelligence risk ahead of the stock market: "Oracle's stock fell 60% from its peak after CDS had widened. The credit market sees the risk. The stock market decided to pay attention to it later." (A credit default swap, or CDS, is essentially insurance against a company defaulting; its price rising means the market thinks default is likelier.) His framing of the shift: "the market for AI risk has shifted from can they build it to can they afford to build it, and how long are they going to be building?" ### 7. "Why are you going to all these third-party sources to do this thing off balance sheet?" The sharpest question of the week about how the artificial-intelligence build is being financed came from Rick Heitzmann of FirstMark on the [RiskReversal Pod](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOggEyLMyBu2f8jC8RSOLIhfXASLqIXJWeG36czLfoVtjT3Fc9w1MHW6-2BbHcLE-2FX9jmTNeupA0EG-2BgF4i-2FDtGRrJLru6hptK0k9H-2Bqq-2B6AOZLA-3D-3D15l6_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXvM6mrdFVlc47U5RWXtRnwhAnAOIUuKwsltHixfqafCnVKgPpob8x0Ms6JHAriSKvJM5s9Gltrjm0SSZ7C-2FPWVVb4ZEMb8ByqFRYORv2EJ9eVPdtQHz9RZkaJuQw57q8grqqHIKU8SzX9-2FQFen0joiTVd6DhbVgATQ3caUeDVOYQ-3D-3D) (Jul 23), in an episode titled around exactly this: the gray-area deals. His point is one of those questions that is obvious the moment somebody asks it. "You always wonder why go to the gray area? Why have KKR come in and do something in Louisiana if you're Meta and you really believe in this ROI and you're one of the biggest companies of all time and you're producing a tremendous amount of cash? Why are you going to all these third-party sources to do this thing off balance sheet?" And then the kicker: "If you could really prove that this is such a great ROI, why aren't you keeping the returns?" He then described a financing structure that ought to give everyone pause. Recounting reporting about how Elon Musk's X funded infrastructure: "I need to go to Apollo to finance this debt. Okay, Apollo doesn't want to do it unless they have some equity underneath them. It's not the equity from X necessarily. They got NVIDIA to put that equity in so they could buy the chips." His verdict: "So this is a little bit of not only circular financing, but the gray area of, hey, these are not necessarily the most transparent debt deals, even ones done by the hyperscalers in the public markets." Circular financing means the chip seller helps fund the buyer who then buys its chips, the money goes round in a loop, and it can look like real demand when it is partly self-created. Host Dan Nathan added the scale figure and the structure. He cited a Nikkei report of "$1.65 trillion of off-balance sheet debt that has been used by the major hyperscalers to build out the infrastructure," and described Meta's data center financings in Louisiana and Wisconsin, "where ultimately the structure works where they're going to own 20 percent of the equity. And there's like an SPV and, you know, Blue Owl's there, and they're raising money from KKR. And we know the banks are lending into that too." An SPV, special purpose vehicle, is a separate company created to hold one project, which keeps the debt off the parent's own accounts. His discomfort was plain: "it just seems very confusing when you think about just this is hard assets that they're only depreciating." Heitzmann's historical framing is the part worth keeping. He has seen this film. "We lived through the late 90s where you had to build out the hardware infrastructure of the Internet. And there are these great companies that people don't even think about anymore. Cable and wireless, which destroyed $40 billion of equity market cap in eight months. Global Crossing, which was bringing Internet to the world... Cisco took 26 years to get back to their February 2000 pricing." His conclusion is not that the technology fails, it is that the money is made somewhere else: "the real winners from that 20 years ago were application-level companies that didn't have to put that money in the ground, the Amazons, Googles of the world." ### 8. What it actually looks like when Blackstone writes you a $4 billion cheque A useful change of angle, and a reminder of how differently the giants underwrite. Marcus Ridgway, co-founder and former chief operating officer of Invitation Homes, the Blackstone-backed company that built the first large institutional single-family rental business in America, told the story on [The Capital Raiser Show](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOj-2FllgGJNkW0UZR64rpNBf5FegC23F48sOFQZFWxegkNHEKMjrUeFODwV0Bjvo3aqIN8oMHlTJGuEHTOgjEBX9NR2qm7jQM9Dr1N1lwiNyq7Q-3D-3DRvny_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXvM6mrdFVlc47U5RWXtRnwhAnAOIUuKwsltHixfqafCtwKlt4in0DoE0uOx0-2BjCjIMlQc2S1v8hlu1sAgH7Qn6EgMXgGA-2Fh1FTbBzlOuNTozljOWBfyBxTVKnCzBSgWQhyuOl2KnQ9VHuX9ThUBIxP0hcy-2FScYRQoikxq1mCCpQg-3D-3D) (Jul 27). He and his partners were trying to raise $100 million. Blackstone looked at the systems and accounting they had built and "said, 'Don't talk to anyone else.' We were trying to raise $100 million. They said, I want you to go back and underwrite this for $1 billion." Then the speed: "on a Wednesday, they shook my hand, said, we'll do the deal. And on Monday, they wired $35 million to my account. No docs were signed. Think about that. By the time we had signed our JV docs, guess how much money they had given me? $1 billion." At peak the business was "buying $200 million a week in one-off single-family houses," on the way to more than 80,000 homes and a New York Stock Exchange listing. The line that transfers to today's debate is about what large institutions actually look at. "Big institutions don't look at pitch decks. They don't look at deals. They don't even look at IRR. They look at downside risk. How are you going to protect their money from going away." He described being fired at over a single spreadsheet with the wrong date on it, "if they couldn't trust the date to be accurate, then how could they trust us with anything else that came out of our company." In a week when the central question across private credit is whether investors can trust the valuations they are shown, that is a well-timed anecdote. ## The debate ### Is this a shakeout or a downturn? This is now the argument, and both sides were unusually well represented. The shakeout case, made by people who actually run the money: default rates are elevated but knowable, Golub cited an independent index running "a little more than 2x normal," not ten times normal. Borrowers are still growing, just slower. The problems are concentrated in a definable place (software companies financed against revenue rather than cash) and a definable time (the refinancing wave that begins next year). And the pain is spread very unevenly, Golub's "dispersion," Clark's "shakeout," Yoseloff's clubs that people do or don't want to be in. On this reading, weaker managers will fail, redemptions will keep coming from investors who should never have been in the product, the industry consolidates around a smaller number of very large firms, and the asset class emerges intact and more concentrated. The downturn case does not need to argue that the operators are lying, only that they are early and interested. Every honest indicator is pointing the same way at once: new lending down about 40% in a quarter; the biggest bond manager in the world telling clients the loss cycle has begun; even Amazon having to pay up to place debt; and now federal prosecutors issuing subpoenas about what private credit holdings are really backing. Yoseloff's warning about how long a jam takes to clear is the strongest version of this: the incentives of everyone involved, buyout firms who need to raise the next fund, lenders who would rather amend than admit, documents too weak to force the issue, all point toward delay, and delay in a floating-rate world is expensive. Note too that the two men who sound calmest about credit both run firms that would be winners of a shakeout. That does not make them wrong. It does mean their calm is not free of self-interest. ### The genuinely new fight: should private credit trade? For the first time, two operators took opposite sides of a real question in the same week, and it is more consequential than it sounds. Golub says trading private loans is "not new and it's not bad", his firm has done it for a decade, did over $2 billion of it in six months, and he frames it as a service that lets an unhappy lender leave without hurting the borrower. Clark, from the other end of the market, sees a trap: "That worked when a big direct lender had $5 billion of assets under management. When lenders now have $30, $50, $100 billion, they're not selling loans to other lenders. So you've got a negative selection bias that's going to start to show up." Negative selection bias means the loans that get sold are, on average, the ones the seller most wanted rid of. Both men can be right, Golub is describing a manager repositioning a healthy position, Clark is describing what a market fills up with once everyone is doing it. Watch which version wins, because it determines whether the emerging trading market becomes a genuine pressure valve or a conveyor belt that moves bad loans from sophisticated hands into less sophisticated ones. ### Is the distress trade already shrinking? Almost every bear thesis this cycle ends with someone buying assets cheaply from a forced seller. Two things this week cut against that. The banks are back in commercial property with enough money to refinance borrowers who would otherwise have had to sell. And Yoseloff argues the buyout industry has both the incentive and the documentary freedom to simply wait. If capital is available and nobody is forced to transact, the distressed opportunity that funds have been raising money to chase may arrive smaller and later than advertised, which is its own kind of problem for anyone who has already taken the fees. *What the silence still says.* Progress, and gaps. The insurance channel is no longer silent, but it still is not the insurers talking, last week it was a short-seller, this week it is a grand jury. Nobody from Athene, Corebridge, Global Atlantic, F&G or Brookfield Reinsurance came to a microphone to explain how their private credit holdings are disclosed or valued, in the very week that two of their peers were reported subpoenaed over exactly that. That silence is now conspicuous enough to be a data point on its own. Elsewhere: the exit logjam finally got discussed properly, with both Golub and Yoseloff pointing to continuation vehicles and secondary sales as the release valve, though still nobody is walking through the economics of a specific deal. And there was again nothing on the push to put private assets into 401(k) retirement plans, nothing on NAV lending beyond a passing mention that it is one of the places hidden leverage might sit, and no voice at all from the wealth platforms and advisors who are selling these products to ordinary investors. In a week when a direct lender said out loud that many recent buyers "didn't belong there in the first place," the absence of anyone from the distribution side is the loudest gap in the room. ## The names in play - **Blackstone (BX)**: the week's most confident voice and its most concentrated bet. Earnings up 26% on top of 25%, seven gigawatts of data center leasing on pace this year against one gigawatt two years ago, $8 billion and $7 billion asset sales banked, and a president openly arguing the shares deserve a re-rating. The counterweight, from Eisman: soft base management fee growth, softness in real estate and credit, a lengthening wait to return investors' money, and a firm that "bragged" about being the biggest financier of artificial-intelligence data centers in the same week the market started punishing capital spending. Also worth noting how deliberately Gray said Blackstone has "no insurance liabilities." - **Golub Capital (private)**: the most candid operator of the week. Conceded stress at roughly twice normal levels, predicted consolidation and continued redemptions, declined to call the retail semi-liquid fund perfect, and revealed a record $2 billion of private credit loan trading in six months, which may be the single most under-covered structural development in the asset class. - **TPG Twin Brook Capital Partners (TPG)**: the discipline case at the small-company end, 310-plus borrowers, positions capped near 1%, cash-flow-only lending, real covenants, and every single loan independently valued every single quarter. Also the source of the week's bluntest line about who is redeeming and why. - **Davidson Kempner (private)**: the crossover investor with the clearest arithmetic, 40% of buyout dollars and low-to-mid-30s percent of direct lending dollars went into software, and public portfolios have an artificial-intelligence hedge that private ones simply do not. Positioning to buy loans and capital structures from lenders acting as "the new banks." - **Delaware Life Insurance and Clear Spring Life and Annuity (private)**: reportedly subpoenaed by a federal grand jury over disclosure of private credit holdings backing affiliated ventures, with a parallel securities-regulator investigation reported. No charges reported; nothing established. But these are the first named insurance companies in this cycle where the question moved from a critic's slide to a legal process. - **Apollo (APO), Blue Owl (OWL), KKR**: named on podcasts as the private capital behind the off-balance-sheet artificial-intelligence build, Apollo in the X financing that required NVIDIA to supply equity underneath it, Blue Owl and KKR in the Meta data center vehicles where Meta retains 20% of the equity. Not accusations; descriptions of structures that even sympathetic observers called a "gray area." - **The banks, Bank of America (BAC), U.S. Bancorp (USB), PNC, Truist (TFC)**: for the first time this cycle, the share-takers rather than the share-losers. Commercial property books up 8%, 8%, 15% and 25% respectively in a single quarter. - **Amazon (AMZN)**: not a credit problem, a signal. A $25 billion deal covered only about 1.6 times against a market average near four times, with an extra 18 to 21 basis points of yield on the long bonds. When the strongest borrower in the market has to pay up, the marginal borrower is in a very different conversation. - **Oracle (ORCL)**: the live example of credit leading equity. Default-insurance costs widened first; the shares then fell 60% from their peak. ## Read-throughs - A grand jury changes the character of the insurance debate. Until this week, the case against private-equity-linked insurers was an argument. It is now also a legal process with named companies attached. Even if nothing is ever charged, the discovery of what actually backs these portfolios will be slower, more public and less controllable than any manager would like. Watch for other insurers to be named, for disclosure practices to change pre-emptively, and for the phrase "affiliated ventures" to start appearing in a lot of investor letters. - Falling issuance is the most reliable stress signal available, and it is falling fast. Defaults are backward-looking and easy to postpone. New lending volumes are not. Down about 40% in a quarter, with buyout-related lending down about a third, means the refinancing escape hatch is narrowing right ahead of the 2027–2029 maturity wall everyone is circling. Track quarterly issuance more closely than the default rate. - Watch the banks, but for the opposite reason than last week. Seven days ago the bank story was contagion, how much exposure lenders have to the funds. This week it is competition, banks writing commercial property loans again at 80% higher volumes than a year ago, compressing private lenders' margins and rescuing borrowers who would otherwise have been forced sellers. Both stories can be true, and the second one is more immediately relevant to returns. - Private credit is becoming a traded asset class whether or not the industry admits it. A record $2 billion of loan trading at a single manager in six months, plus a prediction from that manager that the line between private credit and the public loan market will blur, points somewhere specific. It brings price discovery, which the critics have demanded, and it brings the risk Clark named, that what trades is disproportionately what somebody wanted to get rid of. - The off-balance-sheet question is the one to keep asking about artificial-intelligence finance. When companies with enormous cash generation route infrastructure through special vehicles, private lenders and third-party equity, the honest question is Heitzmann's: if the returns are so good, why give them away? Every layer of structure between a data center and the company using it is a layer where the "who is actually on the hook" question gets harder to answer. - Hold times are a quiet, compounding pressure nobody is pricing. Buyout firms holding companies six years instead of four means loan covenants that step tighter every year are being tested against companies that have had longer to disappoint. Expect covenant breaches, technical, not payment-related, to rise for reasons that have nothing to do with anything going wrong. They will read as distress in the headlines anyway. ## What changed The direction of the argument reversed. For weeks, the bears advanced and the industry said nothing. This week the industry answered, three senior operators, on the record, none of them denying stress, all of them recasting it as a culling that separates the disciplined from the tourists. It was the most substantive defence of the asset class this cycle, precisely because it wasn't a defence: it was an admission of stress paired with a claim about who survives it. And yet the two most consequential developments were not arguments at all. One was a grand jury, which does not care how anyone frames the narrative and which turned the insurance question from contested opinion into a legal process with company names on it. The other was a set of ordinary bank lending numbers showing that in commercial property, the one market where private credit's advance over the banks was most complete, the banks have taken the field back in a single quarter. Put those together and the framing of this whole cycle needs adjusting. The question has not been "will private credit blow up." It has been, for a while now, "what does private credit look like when it stops growing." This week gave the first real answer: a smaller number of much larger firms, an emerging market for trading loans that were sold as untradeable, a legal spotlight on the insurance balance sheets that funded the boom, and, for the first time, competitors taking business back. That is not a crisis. It is something the industry has never actually been through, which is a contraction. --- ## Get the full transcripts on Matterfact This briefing was produced with Matterfact, which indexes the complete, full-text transcripts of 120M+ podcast episodes alongside SEC filings, earnings calls, and financial datasets. 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