An expert Q&A on structural and legal risks highlighted by recent disruption in the private credit market, including liquidity mismatches inherent in certain business development company (BDC) structures, risks of back leverage, software sector concentration, and net asset value (NAV) opacity.
Recent high-profile defaults in the private credit market and unprecedented redemption pressure on large private credit funds have placed the $1.8 trillion private credit industry under wide public scrutiny for the first time since the industry’s phenomenal rise following the 2008 global financial crisis. Additionally, JPMorgan’s decision to mark down the value of collateral on software loans in private credit financing facilities, reducing the availability of funding for private credit lenders, has also led some observers to question portfolio valuations, particularly if exposed to the software sector. However, rather than signaling an imminent collapse of the asset class, these disruptions likely represent a market correction that may strengthen the private credit market and support continued and sustainable growth.
Practical Law asked Gabriel Yomi Dabiri and Cynthia Weiss of Squire Patton Boggs (US) LLP to discuss the structural vulnerabilities and legal risks behind disruptions in the private credit market, and steps that private credit funds, private equity sponsors, and banks can take to navigate the current disruption.
This article was originally published in the June 2026 issue of Practical Law The Journal and is reposted with permission of Thomson Reuters.
