Concerns spread over U.S. private equity loan market insolvency

Concerns spread over U.S. private equity loan market insolvency

1️⃣ Recent bankruptcy cases

Auto lender Tricolor bankruptcy → JPMorgan loses $170 million.

CEO Dimon: “If you see one cockroach, there’s more” warning.

Primalend → filed for bankruptcy in Texas court (asset and liabilities <$500 million).

First Brands → $6 billion in debt failure, filing for bankruptcy protection.

Regional banks (such as Zion Bancorp, Western Alliance) also suffered loan losses and plunged stock prices.

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2️⃣ Market reaction and optimism

Some IBs and Moody’s maintain optimism, saying, “There is no transfer (proliferation) phenomenon.”

In fact, large IBs are still stable with their third-quarter performance exceeding expectations.

But Bank of England Governor Bailey warned, “similar to optimism just before the 2008 crisis.”

“We must take the risks of the private equity credit market seriously.”

“Pre-2008 patterns such as slicing and trenching loans are being reproduced.”

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3️⃣ Structural background

The private credit market has grown rapidly for 15 years since the 2008 financial crisis.

Taking advantage of large banks’ reduced lending, it was expanded to include non-banking and regional banks.

Accumulated possibility of insolvency by supplying funds at high interest rates to borrowers with low creditworthiness.

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4️⃣ Market impact and outlook

U.S. regional bank and private equity loan insolvency could justify Fed rate cut.

CNBC’s Jim Cramer: “Credit Losses Motivated By Fed To Lower Interest Rates Fastly”

However, some are concerned about the possibility of a small impact spreading to system risks amid the “AI bubble” + “liquidity market.”

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5️⃣ Comprehensive evaluation

It’s not a systemic crisis at the moment.

However, there is a possibility that “optimism that underestimates small insolvency” will be reproduced as in 2008.

When AI-led overheating market, poor private equity loans, and local bank losses are combined
**’Second SVB crisis’ → ‘mini-financial crisis’ ** Many warnings that it could turn into a ‘mini-financial crisis’**.

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to sum up,

The current insolvency of private equity loans is a partial risk signal,
There are signs of a repeat of 2008 optimism,
The key is that small shocks can have a big ripple effect amid interest rate cuts, AI bubbles, and liquidity markets.