Concerns Build in Private-Credit Industry

The concerns building in the private-credit industry are starting to inflict pain in a rapidly growing segment of the US municipal debt market.

The anxiety around private credit, where firms have faced high-profile blowups and redemption requests, has roiled select munis in a sector known as prepaid energy bonds. These securities allow municipal utilities to buy electricity or natural gas at a discount by locking in decades of supply upfront — savings they can pass on to customers.

Investors point to deals involving insurer Athene Annuity and Life Co., which is owned by Apollo Global Management Inc., one of the big asset managers whose shares have slid amid private-credit jitters. Some of these prepaid energy bonds have weakened more than benchmark munis, which are slumping along with the rest of fixed income as soaring oil prices spark inflation concerns. The outlook on the flagship fund of private credit giant Blue Owl Capital Inc. was cut to negative by Moody’s Ratings, the latest sign of mounting strains in an industry stung by investors rushing to pull their money from funds aimed at retail buyers.

The rating firm moved the outlook on Blue Owl Credit Income Corp., a non-traded business development company, from stable after “significantly higher-than-peer redemption requests in the first quarter,” it said in a statement Tuesday. The move is part of Moody’s broader revision of its outlook for private credit investment vehicles to negative.

Blue Owl’s $36 billion private credit fund received requests from investors to cash in on 21.9% of outstanding shares but capped redemptions to 5% in the first three months of the year. Shares of the firm, which have become one of the favored ways to bet on a sustained fallout due to the company’s elevated exposure to software businesses that could be laid low by AI, closed at a record low earlier this week.

The $1.8 trillion private credit industry is facing an investor exodus amid concerns over lax lending standards and failure to clearly explain liquidity restrictions. Investors have sought to withdraw around $13 billion from over a dozen funds in the first three months of the year, according to Bloomberg estimates and data from Robert A Stanger & Co. Heavyweights including Apollo Global Management Inc., Ares Management Corp., BlackRock Inc. and Cliffwater LLC have all moved to limit redemptions. Meanwhile, Blue Owl’s smaller, tech-focused vehicle saw exit requests top 40%.

While the redemption limits kept net outflows contained, “we now expect elevated redemptions to persist in coming quarters and inflows could slow further from already reduced levels,” Moody’s added. As a result the fund’s “currently strong capital and liquidity positions, which are relative credit strengths, could begin to dissipate as the co 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.

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