Private Credit Experiencing 'Growing Pains,' SLR Capital Partners' Co-CEO Gross

Michael Gross, Co-Founder of SLR Capital Partners said pressure on business development companies are part of private credit's "growing pains."

JPMorgan Chase & Co. is restricting some lending to private credit funds after marking down the value loans in their portfolios. At the same time, BDCs — which lend directly to middle-market companies — are seeing elevated redemption requests amid fear of loss related to oversized exposure to software firms disrupted by AI.  Besides equity from limited partners and public investors, private credit funds rely on banks for funds. They also raise debt in the investment-grade bond market. A swelling wave of redemptions has driven Moody’s Ratings to revise its outlook for private credit investment vehicles to negative, after holding the line at stable for over two years.

The ongoing exodus from nontraded vehicles, which make up 60% of the sector’s assets, and elevated leverage in their publicly-traded counterparts are key drivers of the credit grader’s revision, according to a report Tuesday. The “disruptive force” presented by artificial intelligence is expected to compound the group’s worries and put it “on defense” in the coming year, Moody’s analysts wrote.

An abrupt reversal in the first quarter spurred the first ever net outflow for the sector, Moody’s said. Before artificial intelligence advances set off alarm bells over the durability of software securities, the vehicles had experienced robust net inflows as recently as the third quarter of 2025.

For the nontraded business development companies, it’s “an unfavorable dynamic that is unlikely to turn around” in 2026, Moody’s said. Recent redemptions have forced some funds to impose caps on withdrawal requests and threaten to create a cascade of investors trying to exit their positions.

Read More: Blue Owl BDCs Impose Caps After Facing 41%, 22% Requests to Exit

“The proration of investors and headlines of elevated redemptions may incentivize other investors to seek redemptions,” report authors, led by Clay Montgomery, a vice president in Moody’s Ratings’ private credit team, wrote.

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