Exploring Credit Trends in a Shifting Market

Lenders are adapting to a rapidly evolving environment, not only in response to the rise of private credit but also because of economic and business uncertainty.   

How investors balance risk and return in private credit markets was the focus of the “Credit Trends and Private Credit Evolution” at the Milken Institute’s Global Conference 2025 in Los Angeles. Joining me for the discussion was an esteemed group of leaders in the credit space, including:  

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  Greg Braylovskiy, Managing Director, Strategic Value Partners 

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  Anne-Marie Fink, Chief Investment Officer, Private Markets & Funds Alpha, State of Wisconsin Investment Board  

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  Steve Kuppenheimer, Partner, Portfolio Manager, Head of Private Credit, Lord Abbett  

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  Brad Rogoff, Global Head of Research, Barclays  

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  Moderated by Eric Platt, U.S. Investment Editor at the Financial Times 

The panel highlighted the need for companies to have access to increasingly diverse sources of financing to grow their operations, including both public and private markets. While public markets provide a deeper pool of capital, many businesses require more customized solutions that only private credit can offer, such as direct lending, leveraged loans and high-yield bonds.  

As the moderator noted in his opening remarks, private credit is at “an inflection point.” After some of the largest players have deployed hundreds of billions of dollars into private credit markets in recent years, it is an open question whether a slowing economy and high interest rates could put pressure on those private lenders.   

Overall, there is a lot of capital chasing too few assets. Working with lenders that have a pipeline to source deals has taken on a greater importance for investors. With a recession and tariffs adding to macro risks, concerns have also increased about rising default risk in the underwriting process.   

The panel had a variety of perspectives on how high the default rate could go if the economy weakens. A panelist argued that as we look through the cycle, the cumulative default risk could reach 12% to 15% over a three-year period.   

In any case, risk management is paramount. Whether default risk rises or not, underwriters are taking a cautious approach, said all of the panelists, and are stress-testing for different economic cycles.   

While economic uncertainty may be a headwind, debt market growth isn’t going to stall. As the panel noted, public and private capital together help drive growth and innovation despite economic uncertainty. Indeed, I explored this idea in an essay: imagination – not access to capital – should be the only limit to a flourishing future for all businesses.   

The market will heal itself as investors digest the changing market conditions. Banks are still open to underwriting, though activity is currently ebbing. This pause is giving the market time to re-evaluate, absorb and understand what it owns, while continuing to grow organically through interest payments.  

One of the challenges for underwriters today is deciding how much risk to take on. Some of my colleagues on the panel suggested companies looking to access debt markets should pay extra attention to how existing loans are priced.   

While lenders will still make new credit work even if bonds are trading below par, there is a limit, they noted. One panelist pointed to the market volatility in April when average bid prices fell to $95. Some of my colleagues noted that it’s hard to make the case to issue debt for a new company, rather than focus on the companies they already own and offer the same return. Some on the panel said they’re looking at relative value pricing, buying in the secondary market versus underwriting a new opportunity.  

In the current environment, private lenders may have to ride out shorter-term market ups and downs, assuming they’re holding their credit through to maturity. For some, that could mean waiting six or seven years, through an economic cycle, before realizing liquidity, depending on loan size. Larger loans in the $2 billion to $7 billion range, syndicated across dozens of investors, may be seen as being more tradable versus smaller direct lending facilities.   

The rapid growth in the private market hasn’t come at the expense of public debt markets. To ensure companies can raise capital for strategic initiatives in virtually any market condition, private debt markets should be seen as complementary to public debt, rather than a replacement.   

To help ensure companies have access to credit, BMO has developed partnerships across the private credit spectrum. For instance, we have joint ventures with leading asset management partners Canal Road Group and Oak Hill to service the upper middle market that’s increasingly reliant on private credit lending.  

Credit, whether private or public, should be an enabler for a range of businesses to flourish, no matter the economic environment.