Private‑credit shakeout warned
Morgan Stanley warned of a looming private‑credit shakeout that could push default rates in direct lending up to about 8%—losses the firm likened to the COVID era—raising the prospect of tighter capital for infrastructure projects. The call frames a near‑term funding risk that could delay or reprioritize trading modernization spend. (cnbc.com)
Bloomberg identified the Morgan Stanley team behind the note as including fixed‑income strategist Joyce Jiang. (bloomberg.com (bloomberg.com)) Morgan Stanley’s earlier analysis put software exposure at roughly 16% of the U.S. loan market—about $235 billion of the $1.5 trillion universe—and said roughly 50% of those software loans sit at B‑ or lower credit grades. (money.usnews.com / Reuters (money.usnews.com)) That caution landed in practice at the retail level: Morgan Stanley’s North Haven Private Income Fund honored about $169 million, roughly 45.8% of redemption requests, while enforcing its 5% quarterly repurchase cap after requests equaled about 10.9% of shares outstanding. (money.usnews.com / Reuters (money.usnews.com)) Wall‑side plumbing tightened as banks retrenched: Moody’s‑sourced counts show U.S. banks had almost $300 billion in loans outstanding to private‑credit providers as of June 2025, plus about $285 billion lent to private‑equity funds and roughly $340 billion in unused commitments. (money.usnews.com / Reuters (money.usnews.com)) Market counterparties moved to revalue exposure — JPMorgan has marked down certain loans to private‑credit groups and curtailed some financing lines, a step Bloomberg and CNBC reported as part of banks’ push to limit back‑leverage to managers. (bloomberg.com (bloomberg.com); cnbc.com (cnbc.com)) Redemption gating has become industry‑wide: BlackRock applied a 5% cap on its HPS Corporate Lending vehicle after first‑quarter requests surged, and Cliffwater limited payouts after investor requests hit about 14% of its flagship fund. (bloomberg.com (bloomberg.com); cnbctv18.com (cnbctv18.com)) Private‑credit managers have been a growing source of infrastructure and data‑center financing, and advisory firms estimate roughly $1 trillion of data‑center investment over the next five years—a large pool that Oliver Wyman and S&P Global say private capital was poised to help underwrite. (oliverwyman.com (oliverwyman.com); spglobal.com (spglobal.com))
