Newsletter · · Ashutosh Agarwal

Record Private Credit Defaults as Blue Owl Marks a Loan to Near Zero - The Private Credit Boom (and Cracks) - Week of September 23, 2026

The Private Credit Boom (and Cracks) for the week of September 16 to 23, 2026. Podcast synthesis on a record trailing-12-month default rate (6% on Fitch's panel, 6.3% on the widely-cited August figure), Blue Owl marking its Loparex loans to near zero with OBDC on non-accrual, a Jefferies/Point Bonita fund tangled in a $500M Radiant World exposure, and operators from Apollo, Monroe, and HPS/BlackRock pushing back with data.

The Private Credit Boom (and Cracks)

Week of September 23, 2026: Record Private Credit Defaults as Blue Owl Marks a Loan to Near Zero

A plain-English read on what people are actually saying about private credit, the $2 trillion-plus world of non-bank lenders that now fund most of corporate America's buyouts. This week, the pundits and the operators finally started arguing about the same facts.

TL;DR

  • The default numbers set a record. Private credit's trailing-12-month default rate hit its highest level ever in August (Fitch's borrower panel put July at ~6%, and one widely-cited figure reached 6.3% in August), with almost half of August's defaults coming from borrowers who simply couldn't refinance and got their loans extended instead. The pain is concentrated in small borrowers, not the big ones.
  • Two ugly, specific blow-ups surfaced the same week. Blue Owl reportedly slashed its loans to specialty-materials maker Loparex to "near zero," and its public BDC (OBDC) moved the position to non-accrual with a possible bankruptcy ahead. Separately, a Jefferies specialty-finance fund (Point Bonita) is now tangled in a ~$500M exposure to an iron-ore trader, Radiant World, bigger than its earlier First Brands mess.
  • The operators pushed back hard, and with data. Apollo's Jim Zelter called it "an amazing time to be a credit investor," Monroe's Ted Koenig said the AI-software scare was "media overreach" and "hasn't been an issue," and HPS/BlackRock laid out a plan to double its private-credit business. This is the first week in a while where the bulls and bears were loud at the same time.

What's New

1. "Private credit defaults just hit a record high." That's literally the title of this week's episode from macro commentator Jeff Snider on Eurodollar University (Sept 18). His headline number: "The trailing 12-month default rate across 1,300 U.S. private credit borrowers rose to 6.3% in August, exceeding the previous record set only one month earlier." The detail that matters more than the headline: 45% of August's defaults were "caused by stressed maturity extensions," deals where a lender gives a struggling borrower more time because it can't repay or refinance on schedule. In plain terms, nearly half the "defaults" are lenders quietly kicking the can, which locks up their cash and delays the day they have to admit a loss. Snider is a pundit, not a lender, but he's quoting hard third-party data (Houlihan Lokey, Fitch), which makes this more than an opinion.

2. Blue Owl marked a loan to almost nothing. On The Banker Next Door (Sept 20), the host walked through the Bloomberg report that "Blue Owl Capital is said to have slashed the value of its loans to... Loparex to near zero," noting "the write-down raises fresh concerns over valuation practices at the $1.8 trillion private credit sector." Blue Owl's public BDC, OBDC, moved its Loparex exposure to non-accrual status after the second quarter (meaning it stopped booking interest income on it), and "Moody's downgraded its probability-of-default rating... over missed term-loan interest payments," with a Chapter 11 bankruptcy potentially to follow. Why it matters: this is a real, named markdown at a large public manager, the kind of concrete evidence bears have been waiting for, and it feeds directly into OBDC's net-asset-value and dividend-coverage math.

3. A second specialty-finance fund is in trouble, and it's bigger than the last one. Same episode: a Jefferies-linked fund "has an almost $500 million exposure to a trader called Radiant World," per the Financial Times. Jefferies' Point Bonita fund "secured a freezing order from a court in London against Radiant World, its founder, Pinkesh Nahar, and Sapphire Min Metals," with the FT putting the order at "up to $499 million." The host's blunt take: "this exposure to Radiant World at around $500 million is far higher... than some of the frauds that they had with First Brands Group. So this is big. This is a very, very big deal." Point Bonita is the same fund that "drew attention last year after Jefferies disclosed it had hundreds of millions of dollars of exposure to bankrupt auto-parts maker First Brands Group." Why it matters: two named fraud/blow-up situations at one specialty-finance vehicle in a year is a flashing light on how well some of this stuff is underwritten and marked.

4. The stress has an address: small borrowers. The most useful data all week is about who is cracking. Per Houlihan Lokey figures cited across both the Eurodollar and Banker Next Door episodes: among borrowers with $10–20 million of EBITDA (a rough proxy for cash earnings), 12% of loans are now valued below 90 cents on the dollar, one in eight, versus about 1% back in 2023. For borrowers over $100M EBITDA, that figure is just 3%. Fitch's read (via The Banker Next Door): a 6.1% default rate in July, up from 6% in June, and for the smallest borrowers (~$25M EBITDA or less, who were 54% of all defaulters) the rate was 12.3% in July, up from 11.8% in June. The counterpoint, from Houlihan's Cindy Ma: "the increase is concentrated and not broad," and the overall market default rate is still "about 0.8% of outstanding principal." Both things are true: the mid-market is hurting, the mega-borrowers aren't (yet).

5. HPS/BlackRock wants to double the business, in asset-based finance, not corporate loans. On The HPScast (Sept 16), HPS managing directors Colbert Cannon and Seth Cohen (both operators/insiders) laid out where the next growth is. HPS "manages approximately $180 billion," and "Larry Fink's on the record talking about wanting to double assets of the firm and double assets of our business unit over the next five years." The target isn't more corporate direct lending, it's asset-based finance (ABF), lending against pools of real-world collateral like aircraft, consumer loans, and equipment. Cannon's framing: the corporate direct-lending market they all fight over is a "15 to 25% market share" slice, while "private high-grade ABF... is a market that is orders of magnitude bigger... and today private credit is a tiny fraction of that." He pegged ABF at "$14 trillion and growing in Europe alone." Cohen flagged aircraft ("4% of global GDP") and consumer as priority build-out areas. Why it matters: the biggest managers are telling you the growth engine is rotating from crowded corporate loans toward collateral-backed lending, which is where APO, BX, KKR, ARES and BlackRock/HPS will compete next.

The Debate

This was the first week in a while where you could hear both sides argue at full volume, so let's steel-man each.

The bear case (this is a cycle starting, not noise). Record default rates. Nearly half of those defaults are just maturity extensions in disguise, losses deferred, not avoided. A one-in-eight markdown rate among small borrowers, up twelvefold from 2023. Two named blow-ups (Loparex, Radiant World) landing in the same week, at two different lenders, with valuation and fraud questions attached. And the macro backdrop is unhelpful: as The Banker Next Door host put it, "the rise in interest rates, the rise in oil, this is not helping anything." The bear's summary, in the host's words: private credit "was definitely a little quiet" over the summer, "but now it is starting to pop."

The bull case (this is a normal cycle in a structurally growing, senior-secured asset class). The loudest bull was Monroe Capital's Ted Koenig on How I Invest with David Weisburd (Sept 21). His argument: yes, "38% of the private credit M&A market is software," and yes, retail investors "all of a sudden paused their allocations" nine months ago when the AI-kills-software story took hold, but "now we're nine months later. Hasn't been an issue... We haven't seen it." His risk-layering point is the crux of the bull case: "we're 50% loan-to-value in our deals... we're at the top of the capital stack. We're senior secured. The real risk is in the equity side, private equity." Apollo's Jim Zelter on Bloomberg Talks (Sept 16) was even more upbeat: with base rates at 4.5–5%, "it's an amazing time to be a credit investor... you want to see a strong economy, check. Economic activity, strong, check. Equity markets strong and broad, check."

The pull-quote that captures the week, from Ted Koenig, an operator with 24 years and $24 billion in the business, explaining why he isn't panicking:

"I think it's just a normal cycle. And private credit, we're 50% loan-to-value in our deals. So if you think about it, we're at the top of the capital stack. We're senior secured. The real risk is in the equity side, the private equity market."

The honest read: the bears finally have specific, named evidence (Loparex, Radiant World, record defaults). The bulls have structure and seniority on their side (senior-secured, low LTV, still-growing demand). Both are describing the same market. The question a book has to answer is whether the small-borrower stress stays "concentrated and not broad," or migrates up.

Stocks in Play

Blue Owl (OWL) / Blue Owl Capital Corp (OBDC). The name in the crosshairs this week.

  • Bull: Still a scaled, fee-generating manager; one bad loan (Loparex) is 0.8%-ish of a diversified BDC book, and being senior-secured means recovery isn't necessarily zero even in bankruptcy.
  • Bear: OBDC moved Loparex to non-accrual and Blue Owl reportedly marked the loans to "near zero," with Chapter 11 possibly ahead (The Banker Next Door). The "100-to-near-zero" move revives the question of whether marks elsewhere in the book are honest.
  • Next catalyst: OBDC's next quarterly report and any change in total non-accruals; a Loparex Chapter 11 filing.

Apollo (APO). The loudest bull, positioned up the quality curve.

  • Bull: Zelter says "80% of our assets are credit and credit-like," half funded by regulated insurance balance sheets targeting "plus or minus 7%," and he's leaning into short-duration, high-quality spread and AI-infrastructure debt (Broadcom, NVIDIA, Intel financings) rather than risky equity (Bloomberg Talks).
  • Bear: The insurance-funded model is exactly what critics (see Read-throughs) worry about if annuity money gets restless and asset marks are soft.
  • Next catalyst: Pace and terms of the big AI-capex debt deals; any insurance-channel outflow data.

KKR (KKR). Leaning on scale and operations, not credit metrics.

  • Bull: Pete Stavros on Alt Goes Mainstream (Sept 22): "We have the largest private equity portfolio in the world. We have 225 companies," ~20% annualized returns "over a long period," and an employee-ownership playbook (85 companies, 200,000 workers) he credits for real valuation uplift (Gardner Denver traded "eight EBITDA turns more than it ever had... because of the culture"). Scale = cross-portfolio AI experimentation ("130 experiments running right now").
  • Bear: This was a PE-culture conversation, not a credit-quality one, no data on KKR's own lending book, non-accruals, or the 2021-vintage software deals Stavros admits "will be a little bit of a bump in the night."
  • Next catalyst: Any read on KKR's credit/BDC (FSK) marks; software-vintage performance.

Monroe Capital (private) / read-through to ARES, APO. The lower-middle-market bull.

  • Bull: Koenig's Monroe is $24B, deploying $10B/year, grown at a "25% CAGR" for 15 years, with a $8B retail fund (15,000 investors, ~$100k average ticket). He argues the funding shift is structural: "90% of the financing for buyouts is done outside the banking system" today versus 10% 24 years ago (How I Invest).
  • Bear: Even Koenig concedes distribution scale is a problem: "Apollo, Ares... have 300 people selling that product," Monroe has "15." In a downturn, the giants' distribution + permanent capital win.
  • Next catalyst: Whether the retail "tidal wave" he describes keeps flowing or pauses again as headlines worsen.

HPS / BlackRock (BLK). The ABF growth story.

  • Bull: $180B platform with an explicit mandate to double, aimed at the "orders of magnitude bigger" asset-based finance market (aircraft, consumer) rather than crowded corporate lending (The HPScast).
  • Bear: Fast build in newer areas (consumer, aircraft) means underwriting these books through an untested cycle; ABF's collateral quality is the whole ballgame.
  • Next catalyst: Announced ABF platform acquisitions or bank JVs.

Read-Throughs

  • BDCs (ARCC, BXSL, OBDC, FSK, GBDC): OBDC is the direct hit this week (Loparex non-accrual). The broader read: if the small-borrower stress (12% of sub-$20M-EBITDA loans below 90 cents) is where the market operates, BDCs concentrated in the lower-middle-market face the most NAV and dividend-coverage pressure. Note the PIK creep: Houlihan says "11.8% of loans... elected to pay at least some interest in kind" in Q2, meaning income is increasingly on paper, not in cash. Watch non-accrual percentages and PIK share in the next round of BDC prints.
  • Insurance balance-sheet partners (APO/Athene and peers): Snider flagged that entities tied to Mark Walter's TWG Global (Delaware Life, Clear Spring) "disclosed more than $20 billion of loans and investments that should have been classified as affiliated, but never were." Insurance money is the funding backbone of the permanent-capital model; any regulatory scrutiny of affiliated-asset marks or annuity-surrender pressure is a slow-burn risk for the insurance-funded managers.
  • Regional / smaller banks losing share: The Banker Next Door pushed back on the usual "banks abandoned small business" narrative, noting "95–96% of NDFI [non-bank] lending is concentrated at the largest 6–7 U.S. banks," i.e., the big banks are funding the private-credit machine, not being displaced by it. That's a nuance worth holding: the bank-vs-nonbank story is more "partnership" than "war" at the top of the system.
  • Syndicated-loan / CLO market: With ~$22B of bank bridge financing lined up for the Blackstone-Alphabet "Crux AI" venture (backed by Google's chips and customer contracts), the question is whether the bond market absorbs these mega-deals. If spreads widen or the market saturates, banks hold the paper longer, and smaller leveraged borrowers get crowded out of capital.
  • Data-center / AI / ABF borrowers: Zelter's framing is the tell: private capital wants to fund AI infrastructure as debt against suppliers (Broadcom, NVIDIA) rather than take equity risk, because "the gross margin is highest away from the models." Expect more chip- and contract-backed structures, and more competition for the "safest" slice of the AI build-out.

What Changed vs Last Week

Last week's issue led with the operators finally conceding problems: Brookfield's co-CEOs on recoveries collapsing to ~33 cents (from a ~60-cent historical average), and the mechanics of semi-liquid BDC redemption gates. Here's what moved this week:

  • The marquee number shifted from recoveries to defaults. Last week it was "recoveries halved to 33¢." This week it's a record trailing-12-month default rate (~6% on Fitch's panel, 6.3% on the widely-cited August figure), with the new wrinkle that ~45% of defaults are stressed maturity extensions.
  • The Loparex thread went from rumor to confirmation. Last week Snider flagged Blue Owl's Loparex loan marked toward zero. This week Bloomberg-sourced reporting confirms Blue Owl slashed it to "near zero," OBDC is on non-accrual, and Chapter 11 is on the table. It graduated from a one-source macro aside to a corroborated, named event.
  • A brand-new blow-up appeared: Jefferies/Point Bonita's ~$500M Radiant World exposure, described as bigger than its First Brands loss. This is a second specialty-finance venue in trouble, not a continuation of an old story.
  • The bulls got louder and more specific. Last week's operator voices (Ares' deVeer, Golub) were cautiously constructive. This week Zelter ("amazing time to be a credit investor") and Koenig ("hasn't been an issue... just a normal cycle") were flatly bullish, with numbers to back the structural-growth thesis (90/10 funding flip, $2T→$5T market forecast).
  • The bank question finally got a data point. For weeks this section flagged zero bank partner-vs-compete coverage. This week we at least got the "95–96% of NDFI lending sits at the 6–7 biggest banks" stat, reframing the story as partnership, not displacement.
  • Still quiet: No public-BDC management talking about their own books (BXSL/ARCC/OBDC/FSK executives absent again). No fresh Blackstone B-Cred (private BDC) redemption number. No bank executive on record. And the AI-data-center-financing theme cooled slightly versus last week's Crux AI / Helix headlines: it's now framed more as a lending opportunity (Zelter, HPS ABF) than a stress point.

Coverage Gaps (Being Honest About a Partly Thin Week)

It was a thin week for dedicated private-credit content but a rich one for data. Only six of ~25 in-window episodes were substantively about private credit; the rest were an AI-bubble / macro cluster with only passing mentions (KKR's Henry McVeigh and Apollo's Torsten Slok each name-checked private credit only as a portfolio-diversification line). What's missing:

  • No BDC management on their own books, the people who could actually address the Loparex-style marks stayed silent.
  • No bank executive (JPMorgan, Citi, Goldman, Wells Fargo, PNC) on the partner-vs-compete question, only a host's aside.
  • No fee-related-earnings or fundraising totals from Apollo/Ares/Blackstone/KKR/Blue Owl executives specifically.
  • No Golub, Sixth Street, Oaktree, or Carlyle named speakers this week.
  • The two named blow-ups (Loparex, Radiant World) come from essentially one episode each, corroborated by press reports quoted on-air, worth watching for a second independent source next week.

A note on the numbers: the default figures above come from third-party data (Fitch, Houlihan Lokey) quoted on the podcasts, and they measure slightly different things: Fitch's ~6% is a rate across a specific borrower panel, while Houlihan's ~0.8% is a share of total outstanding principal. Both are cited as reported; neither is our own estimate.