Moody's Analytics, the rating agency, warned that the private credit industry is about to face its "first serious challenges." The $1.4T industry is set for trouble as tens of billions of dollars in loans underwritten at the top of the market in 2021 are being strained by higher interest costs and a slowing economy. Moody's singled out two specific companies, funds managed by Ares and Owl Rock, as ones to be concerned about. - These loans were generally written when interest rates were close to zero nearly two and a half years ago.
- This has changed since the Federal Reserve raised interest rates to cool U.S. inflation.
- Even though Moody's issued this warning, it did not change the ratings for Ares or Owl Rock, which are publicly traded lending funds.
- Since the 2008 financial crisis, the private credit industry has changed as lenders are more focused on small and midsized takeovers.
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