The Private Credit Era — Who Filled the Gap Banks Left, How, and to What Scale

In spring 2025, three events hit the Private Credit (PC) market in a single quarter. None of them is decisive on its own. The meaning comes from the fact that they happened together.

First, on 4 March 2025, Homeplus — Korea's second-largest hypermarket chain — filed for court-supervised reorganization at the Seoul Bankruptcy Court. It had been ten years since MBK Partners acquired Homeplus for ₩7.2 trillion in 2015. The deal was funded with roughly ₩4.3 trillion of acquisition finance (about 59.8% of the total enterprise value). A decade later, reported accumulated debt sat at roughly ₩8.5 trillion.¹ This may become the single largest loss in Korean PEF (Private Equity Fund) and acquisition-finance history.

Second, that same spring in the US, Blue Owl Capital's non-traded BDC (Business Development Company) — OBDC II — was reported to be discounting selected positions for sale. Selling private positions into the market is itself unusual. It was the first concrete signal that interval funds and non-traded BDCs were brushing up against redemption gates (2% per quarter / 5% per year).²

Third, in September 2025, Marc Rowan — the CEO of Apollo Global Management — told CNBC that "the traditional investing model is broken." In the same conversation he noted that "only 20-30% of debt sits on bank balance sheets — the rest lives in the investment marketplace." Elsewhere he used the word shakeout.³

In one quarter: Korea's largest PEF loss case, the first US retail-PC redemption signal, and a shakeout call from the architect of the modern PC industry. That is why we are writing this piece.

Before we go deeper, let us pin down what PC actually is. None of the tables that follow make sense without the acronyms.

In one line: PC is a loan to a company or asset pool that is originated and held by an asset manager, bypassing the public bank-loan and bond markets. Borrowers are typically mid-market companies or PE-sponsored buyouts. Lenders are BDCs, PC funds, and insurance general accounts (GA).

PC AUM grew from roughly $250B just after the Global Financial Crisis (GFC) in 2008 to about $1.7T in 2024 — roughly seven times in 17 years (Preqin narrow basis). Over the same window, US GDP rose about 1.8x and the S&P 500 about 4x. PC grew faster than any other major asset class.⁴

For 2024 alone, deployed capital reached about $592.8B vs. $333.4B the prior year, +78%. Preqin projects $2.64T by 2030; BlackRock, in materials around its HPS deal, sketched a scenario reaching $4.5T.⁵

Why did PC grow? In one line: because the banks left. But banks did not leave voluntarily — regulation pushed them out.

The first chain is Basel III. Issued by the BIS (Bank for International Settlements) Basel Committee in 2010. Two pillars: higher capital requirements and the Capital Conservation Buffer (CCB). Phased in from 2013 to 2019 over seven years. Total capital requirements against risk-weighted assets rose from 8.0% to 10.5%, with an additional 1-3.5% buffer for Global Systemically Important Banks (G-SIBs).⁶

The second chain is the US Interagency Leveraged Lending Guidance (LLG), issued 22 March 2013 jointly by the OCC (Office of the Comptroller of the Currency), Fed, and FDIC (Federal Deposit Insurance Corporation). The rule was blunt: deals at Total Debt / EBITDA > 6x receive heightened scrutiny. It applied only to US banks; PC funds were not covered. The result was equally blunt: 6x+ deals migrated wholesale to PC, which immediately absorbed transactions at 7-9x leverage.⁷

The third chain is the Volcker Rule (Dodd-Frank §619), effective 2015. It restricted in-bank PE-fund sponsorship and proprietary trading. PC desks that had been incubated inside banks spun out and became standalone managers. HPS's path — Highbridge Principal Strategies inside JPMorgan AM (2007), spun out (2016), acquired by BlackRock (2025) — is exactly this pattern.⁸

About 44% of PC AUM is Direct Lending. When we say PC, the picture we have in mind — Blue Owl writing a $2B unitranche to a Carlyle-backed buyout — is exactly this.

The standard structure is the unitranche: a single tranche combining first-lien and second-lien collateral into one instrument. For the borrower, that means a single counterparty and no inter-creditor disputes. For the lender, it means a higher coupon (SOFR + 500-700bp) and more control.

US direct lending volume reached about $302B in 2024, up 107% year-on-year; mid-market direct lending was about $139B, up 85%. Total market volume roughly doubled to $390B. Average LBO leverage in Q4 2024 was 4.8x EBITDA.¹⁰

Cov-Lite (Covenant-Lite) is a borrower-friendly term structure. Traditional maintenance covenants (periodic financial-ratio tests) are softened or removed. Triggers are weak or absent, so the borrower can extend EBITDA add-backs and exercise PIK (Payment-in-Kind) options at will.

93% of the institutional leveraged-loan market is Cov-Lite. Upper-middle-market PC (EBITDA $50M+) runs around 30%; mega-deals (>$500M) about 50% lack maintenance covenants. The average across general PC went from ~4% in 2023 to ~21% in 2024-25 — a fivefold jump (Proskauer).¹¹

In a PIK (Payment-in-Kind) structure, the borrower accrues interest onto principal rather than paying cash. It helps companies with weak near-term cash flow, but lenders take delayed realised yield. Rising PIK shares in PC portfolios across 2024-25 are one driver of BDC redemption pressure.

The most contested line item in LBO lending. Expected synergies, non-recurring costs, and cost-out plans get added back into EBITDA so reported leverage looks lower. Reports in 2024 cited add-backs reaching 30-40% of reported EBITDA on selected deals.

SOFR (Secured Overnight Financing Rate) is the US floating-rate standard after LIBOR's 2021-23 phase-out. Most PC loans are quoted as SOFR + 500-700bp spread. When rates rise, PC yields rise automatically — and so do borrower interest payments. The rate shock of 2022-23 is the direct cause of PC borrower interest-coverage ratios falling below 1.

Distressed credit is about 11% of PC AUM — small relative to direct lending, but historically the most consistent return generator. From 1986 to 2024, US high-yield (HY) bonds delivered a 7.83% annualised return vs. 5.14% on the 10-year Treasury, with HY's average default rate at 3.5% (Oaktree's own tabulation).¹²

The defining player here is Oaktree Capital Management (now under Brookfield). Co-founder Howard Marks has, since 1995, written the most influential memos in credit. Two of his 2024-25 pieces offer the most honest framing of the PC debate.

Two distressed tools sit closest to PC.

DIP financing (Debtor-in-Possession) is new lending to a borrower already in Chapter 11. It carries priority over all pre-petition claims. The 2024 WeWork DIP (Goldman-led, with Cupar Grimmond and others) is the textbook case. For a PC manager, DIP is the safest distressed instrument — capital can be recovered even after every other creditor takes a haircut.

Loan-to-own is the strategy of buying a distressed company's debt and then forcing a debt-for-equity swap to take the keys. The 2024 Vista Pluralsight outcome was exactly this — a lender consortium of Blue Owl, Ares, Golub, Oaktree, Benefit Street, Goldman, and BlackRock ended up owning the business. PE took the loss, PC took the company. (→ ✓13)

Mezzanine sits subordinated between senior debt and equity. Cash plus PIK coupons usually yield 12-15%, often packaged with equity warrants. It once made up about 25% of US LBOs, but the rise of the unitranche has shrunk it to roughly 10% of PC AUM today.¹⁴

The reason is simple: the unitranche is simpler. Borrowers no longer negotiate a senior plus mezz stack — one tranche does the whole job. Many mezz managers have migrated to junior positions and growth financing, which carry more equity-like risk.

ABF (Asset-Based Finance) is lending against a defined pool of assets: auto leases, aircraft leases, receivables, consumer loans, real-estate rents, royalties. Repayment depends on the asset's cash flow, not on the operating company's credit.

Apollo estimates the broad ABF market at $5-6T; PC funds run about $300-400B of it. Apollo's own "Direct Origination + ABF + Opportunistic + Multi-credit" tally is $749.2B (Q4 2024, IR). Marc Rowan has repeatedly forecast that ABF could reach $40T by 2030 — an aggressive number.¹⁵

NAV Finance is a fund-level loan secured by the PE fund's NAV (its invested-portfolio value). The key point: leverage is on capital already deployed, not on uncalled commitments.

In 2024, average per-lender deal volume hit €800M+, up from €330M the prior year — +142% (Rede Partners 2025 survey). 17Capital projects ~$70B of deployment in 2025 and ~$145B by 2030, on a $700B TAM (Total Addressable Market).¹⁶

Standard LTV (Loan-to-Value) sits at 10-25% of NAV; covenants typically require NAV to stay above 3x the loan balance. Lead players include 17Capital (Brookfield), Pemberton, Whitehorse Liquidity Partners, Ares NAV Lending, Hark Capital, Goldman PE Financing, KKR Capital Markets, and Blackstone GSO.

A CLO (Collateralized Loan Obligation) is technically part of the BSL market, but some PC managers wrap CLO-equity tranches into their PC funds. Think of a CLO as a six-storey building: from floor 1 (AAA) up to floor 6 (equity), each layer carries a defined loss order. The equity floor absorbs losses first in exchange for the highest expected yield — 15-20% IRR in good years, zero if defaults stack up.

US CLO issuance reached about $200B in 2024 (LSTA), with active refinancing and reset volumes. Apollo, Blackstone, Ares, and KKR all hold CLO-management licenses.¹⁸

PC is a concentration business. The top seven managers — Apollo, Blackstone, KKR, Ares, Blue Owl, Oaktree, HPS — control more than half of global PC AUM. Add Sixth Street, which deserves its own paragraph, and you get the Big 7 plus One.

The table is not just a ranking. Each manager runs a different model: Apollo merged with its insurer (Athene); Blackstone runs separately managed accounts (Corebridge, Allstate); KKR bought its insurer outright (Global Atlantic); Ares incubated one (Aspida); Blue Owl bolted on platforms (Atalaya, Kuvare); Oaktree is the distressed legacy house under Brookfield; HPS, a junior-debt and specialty shop, was bought by BlackRock.¹⁹

One caveat: AUM definitions differ. Apollo's "Direct Origination + ABF + Opportunistic + Multi-credit" totalling $749.2B is not the same animal as KBRA's narrow "Direct Lending" tally. The numbers below are 2024 Q4 IR or 2025 H1 disclosures; expect ±10% drift driven by definition.²⁰

Why does a PC manager buy an insurer? In one line: permanent capital plus spread arbitrage. Funds have maturities. When LPs redeem, deployment stops. Annuity liabilities, by contrast, average 7-10 years and can be rolled forever by writing new policies — that is permanent capital.

At the same time, annuity cost runs ~4-5% while investment-grade PC yields ~6-8%. The 200-300bp spread is split between the manager's fee and the insurer's margin. In Apollo's own framing: insurance capital is the deepest, longest, and most cost-efficient funding source available. → ✓14 explains why regulators classify the same architecture as systemic risk.²³

If global PC is defined around the US and Europe, Korea's PC-adjacent markets split into three: acquisition finance, real-estate Project Financing (PF), and NPL (Non-Performing Loans). Add K-BDC (the domestic BDC debate) and retail PC access, and you get five buckets. Each has its own size — and its own data gap.

12-1. Acquisition finance. 2024 arrangement volume reached ₩20.3T across 145 deals — a rebound from the ~₩16T low of 2023. KB Securities led with ₩2.96T (8 deals), followed by Korea Investment & Securities ₩2.51T (20 deals) and KB Kookmin Bank ₩2.5T (15 deals). Source: thebell League Table 2024.²⁵

12-2. Real-estate PF. Outstanding balance was ~₩230T at end-2023 (housing ~70%). In June 2023, MG Community Credit Cooperatives' PF delinquency hit ~6%, effectively pushing them out of PF and shifting the burden to securities firms and capital companies. In 2024 the FSC announced a PF normalisation framework, with viability assessments and restructuring under way. Foreign managers — KKR, Apollo, PAG, Blackstone, Goldman Sachs, GIC — concentrate on logistics centres, offices, and data centres. Foreign capital deployed into Korean real estate hit ~$1.6B in 2023.²⁶

12-3. NPL. In 2024, ~₩8.31T of NPL deals came to market — up 53% from ~₩5.43T in 2023. UAMCO (Korea's joint-venture asset manager) was #1, buying ₩3.77T for a 45.3% share (up from 37.1%), funded with ₩3.9T of corporate bond issuance. The 2026 outlook is normalisation to ~₩4T. Foreign managers — Oaktree, CarVal — show up in the dataset, but 2024 activity is hard to cross-check.²⁷

To see the present of PC, you read cases, not statistics. The three below are picked to hit different axes — Pluralsight on US software-LBO valuation risk, MBK Homeplus on Korea's potential single largest PEF/acq-finance loss, and Blue Owl OBDC II on the first liquidity stress in retail PC. They lit up in one quarter — exactly why we opened the note in ✓1 with the same three signals.

Case 1. Pluralsight (Vista Equity). Vista bought the online coding-education business in 2021 for ~$3.5B. In May 2024, Vista marked the $1.6B equity to zero. In August 2024, the PC syndicate — Blue Owl, Ares, Golub, Oaktree, Benefit Street, Goldman, BlackRock — took control via a debt-for-equity swap. The first major PC change-of-control deal. Read it two ways: AI is disrupting paid coding-education, and Vista paid too much with too much leverage.³⁰

Case 2. MBK Homeplus (2015 buyout → March 2025 reorganization). MBK Partners bought Homeplus from Tesco in 2015 for ₩7.2T, funded with ~₩4.3T (59.8%) of acquisition finance arranged by KB Kookmin Bank, NH Investment, and Shinhan Bank. A decade later, on 4 March 2025, the company filed for court-supervised reorganization at the Seoul Bankruptcy Court. Press reports put accumulated debt at ~₩8.5T. This may become the single largest PEF/acquisition-finance loss in Korean history. The contrast with global PC: Pluralsight is software disrupted by AI; Homeplus is offline-retail structural decline plus too much leverage. Same ending — principal impairment.³¹

Case 3. Blue Owl OBDC II — spring 2025 fire-sale reports. OBDC II is Blue Owl's non-traded BDC. In spring 2025, the press reported the fund was discounting selected positions to market buyers. In a hold-to-maturity asset class, selling private positions into the market is itself unusual. It was the first signal that the non-traded BDC and interval-fund redemption gates (2% per quarter / 5% per year) were starting to bite — the PC version of the 2022-23 BREIT redemption rush, in one reading.³²

"Is PC a systemic risk?" is the wrong question. The right one is "through which channels would a shock starting in PC propagate to other markets?" The IMF GFSR April 2024 Chapter 2 and the BoE 2024 FSR converge on five contagion channels. We line them up below.

First the baseline. Direct Lending TTM (trailing-twelve-month) default rate was 2.67% in Q4 2024 (Proskauer PC Default Index); BSL ran 4.33% (Fitch). Sponsor-backed borrowers: ~2.5%; non-sponsored: ~4.0%. KBRA DLD's 2024 forecast was 2.75% — mild and benign. Defaults today are low. The worry is the asset class has never lived through a full cycle since 2008, and under stress, the five channels link up.³³

15-1. For institutional investors — five actions.

(1) Vintage diversification policy in writing. Cap exposure to the 2021-23 peak vintages (low rates, high multiples); concentrate new commitments in late-2024 through 2026 vintages.

(2) Manager concentration limit. No single Big-7 manager gets more than 30% of the PC sleeve. The insurer-PC affiliated share (Apollo × Athene, KKR × Global Atlantic) gets its own separate cap.

(3) Written NAV-financing policy. Bake ILPA's 2024 guidelines into the LPA (Limited Partnership Agreement): NAV-loan dividend recaps require prior LP consent.

(4) Quarterly covenant audit. Pull cov-lite ratios, maintenance-covenant status, and equity-cure mechanics from manager IR every quarter.

(5) Interval-fund / non-traded BDC redemption monitoring. Track quarterly redemption rates at BCRED, OBDC II, ARCC; if they touch the gate (2%/quarter, 5%/year), escalate immediately.³⁵

15-2. For retail investors — five actions.

(1) Keep PC and BDC ETFs to 5-10% of portfolio. Use them for diversification and yield. But recognise this is equity-like risk.

(2) Be very cautious about non-traded BDCs and interval funds. Spring 2025 OBDC II confirmed that the gates actually trigger.

(3) Stick to listed BDCs (ARCC, OBDC, BXSL, TSLX). Track NAV premium/discount, dividend coverage, and NII (Net Investment Income). Don't buy when the fund is trading at a premium.

(4) Separate the manager's stock price from its insurer assets. Apollo, KKR, Blackstone share prices are a function of PC fee income + insurer spread + LP fundraising velocity — figure out which leg is moving.

(5) For Korea exposure, prefer listed GP (where available) or indirect exposure through foreign PC, not direct acquisition-finance positions. Respect the Korean data gap (✓12-5).³⁶

15-3. The Watch Dashboard — seven indicators to track weekly.

These seven cover the full sector stress map. Define normal / caution / danger bands up front, then check the same page every week. One indicator entering "caution" triggers a meeting; two entering "danger" simultaneously triggers portfolio rebalancing.

Six deals to watch over the next twelve months. Some are new financings, others are follow-up disclosures.

(1) BlackRock × HPS post-close performance — fee margin, retention, integration efficiency after the July 2025 closing. (2) MBK Homeplus reorganization outcome — recovery rate and Korean LP outflows from PEFs. (3) Apollo × Athene Bermuda reinsurance treatment — the NAIC's 2026 ruling. (4) Vista Outcomes-style NAV loans — ILPA compliance rate. (5) KKR Global Atlantic 100% integration first stress — how NAIC treats the Bermuda reinsurance relief. (6) Korea K-BDC introduction legislation — 2025-2026 Capital Markets Act revisions.