The $3 trillion boom in private credit is facing its most serious test yet. A spate of bankruptcies, fraud accusations and redemption freezes have exposed the vulnerabilities of a booming financial sector that flourished in an era of low interest rates and loose liquidity since 2008. “The ‘golden age’ of private credit has just hit a wall. Blue Owl Capital’s decision to permanently suspend redemptions of its $1.6 billion OBDC II fund is not just a corporate issue,” said Jiang Liu, founder and managing partner of Lionhill Wealth Management. “This is a systemic warning sign for the entire nonbank financial ecosystem,” he added. Below is a timeline of recent stress points in the industry: September 2025: Bankruptcy of Tricolor and First Brands Concerns about private credit exposure to highly leveraged borrowers grew last September after the twin collapses of First Brands Group, an Apollo Global Management-backed auto parts maker, and Tricolor Holdings, a US-based auto finance company focused on subprime debtors. Tricolor filed for Chapter 7 bankruptcy on Sept. 10 after its subprime auto lending and used car businesses collapsed amid fraud concerns and credit tightening by warehouse lenders. The First Brands subsidiary, which makes spark plugs, wipers, filters, brake parts and other automotive replacement parts, filed for Chapter 11 bankruptcy protection on September 28. Banks including UBS O’Connor and Jefferies Financial Group had lent hundreds of millions of dollars to Tricolor and First Brands, but both companies collapsed in the same month, raising Wall Street’s concerns about contagion in private credit and leveraged lending markets. October 2025: Massive outbreak of cockroaches? In October, after the Tricolor and First Brands bankruptcies, JPMorgan CEO Jamie Dimon pointed to signs that corporate lending practices had become too lenient over the past decade. “If you see one cockroach, there’s probably more. Everyone should be forewarned about this cockroach,” Dimon said. Although JPMorgan avoided losses at First Brands, its exposure to Tricolor resulted in a $170 million write-off during the quarter, CFO Jeremy Burnham said. Charge-off occurs when it is determined that the loan is unlikely to be repaid. “This is not our finest moment,” Dimon noted of the Tricolor episode. December 2025: Tricolor executives indicted U.S. prosecutors have indicted Tricolor executives for what they describe as a years-long “organized fraud” that has rocked parts of the banking sector. According to an indictment unsealed in Manhattan, founder and CEO Daniel Chu and chief operating officer David Goodgame are accused of running a fraudulent scheme from at least 2018 until September 2025. Prosecutors said the pair inflated the value of Tricolor’s loan collateral, allowing it to raise billions of dollars from lenders and investors. January 2026: First Brands Group founder Patrick James and his brother Edward are indicted in New York on charges that they defrauded financiers out of billions of dollars before the auto parts company filed for bankruptcy. At a bankruptcy court hearing in Houston on January 29, a judge approved short-term financing from GM and Ford. First Brands has begun winding down some of its North American operations while looking for buyers for certain assets. February 2026: “Saas Apocalypse” and Blue Owl This movement is not limited to past lending decisions. Investors are increasingly scrutinizing the sectors on which private credit relies most heavily in recent years, particularly enterprise software. Shares of companies with significant exposure to private credit fell sharply in early February on concerns about their relationship with sectors facing disruption from artificial intelligence, particularly software. These include Ares Management, KKR, Apollo Global, BlackRock, TPG, Blue Owl Capital, and more. Investors are concerned that Anthropic’s AI tools, including Claude Code, could hurt future revenue growth and compress profit margins by allowing companies to develop their software in-house. According to PitchBook, enterprise software companies have been a lucrative sector for private credit lenders since 2020. Then, later that month, Blue Owl permanently restricted withdrawals from one of its retail debt funds and announced that it would suspend quarterly redemptions of Blue Owl Capital Corporation II and instead return capital periodically as the portfolio shrinks. Blue Owl Capital Corp. II, organized as a business development company, is an investment vehicle marketed to retail investors in the United States that provides financing to small and medium-sized businesses and represents a major portion of the private credit market. Last Friday, activist hedge funds Saba Capital Management and Cox Capital Partners launched a tender offer to buy a portion of Blue Owl Capital’s three private credit funds. The move is aimed at providing liquidity to retail investors amid rising redemptions and multiple quarters of net outflows across the industry. What’s next? The recent turmoil is testing some of the foundations that underpinned the rapid growth of private credit: aggressive underwriting, highly leveraged middle-market borrowers, and the promise of stable capital insulated from bank-style runs. Instead, lenders now face increased defaults, fraud scrutiny and, in some cases, redemption pressure from retail funds. Still, the burden does not signal the collapse of the roughly $3 trillion industry. Capital is still flowing, and major asset managers continue to raise capital. Global private credit financing increased in 2025, but the pace of growth was slower than in the previous year. Funds that reached final close through Dec. 16 raised $224.25 billion globally, up 3.2% from $217.38 billion in 2024, according to Wiz Intelligence, part of S&P Global Market Intelligence. This figure compares with the 9.7% year-on-year increase recorded in 2024. While the days of easy equity-like returns are fading as the asset class matures and competition increases, the growth phase for private credit is far from over, said Kyle Walters, an analyst at Pitchbook. The Blue Owl episode may ultimately prove to be a learning moment for the industry, Walters added. “This will be a learning experience and management, including Blue Owl, will find better ways to maintain liquidity in these retail products.”
