Key Takeaways
- • Sloan Smith, vice president of Innovest, argues that senior-secured, first-lien private credit remains attractive despite the 2025 bankruptcies of Tricolor Holdings and First Brands Group.
- • The article cites current yields of approximately 8% to 10% in senior-secured private credit, which it says exceed public equivalents such as leveraged loans and high yield bonds.
- • Most private debt is floating-rate, so yields adjust upward if inflation persists and rates rise, according to the article.
- • The article acknowledges that default risk remains the asset class's greatest headwind, citing higher rates, a potentially slower economy, and margin erosion for legacy issuers.
- • The author contends that collateral-backed, senior-secured loans were largely insulated from the fraud-driven failures, with many lenders avoiding the two borrowers.
Summary
The article, published by Advisor Perspectives and written by Sloan Smith, CAIA, MBA, CPWA, vice president of Innovest, examines whether recent private credit stress signals a broader problem or whether opportunity remains. It frames the discussion around the bankruptcies of Tricolor Holdings, a subprime auto lender that was accused of pledging the same loans multiple times and liquidated with over $1 billion in outstanding debt, and First Brands Group, an auto parts manufacturer that collapsed after allegations of capital misappropriation and complex off-balance-sheet financing. Both cases drew significant attention across private credit markets in fall 2025 and prompted creditors to increase regulatory scrutiny and reinforce due diligence.
The author acknowledges a concern that these instances of fraud may reflect systemic issues rather than isolated events. However, the article argues that senior-secured, first-lien lenders holding collateral such as buildings, inventory, or receivables were largely protected, and that many lenders with strong underwriting avoided both borrowers. It notes that senior-secured loans offer a legal right to seize collateral before other creditors are paid, distinguishing them from subordinated or mezzanine debt.
On valuation and structure, the article cites an annual yield of roughly 8% to 10% in senior-secured private credit, an illiquidity premium for investors accepting less liquidity than public markets, and floating-rate terms that provide inflation protection. It also observes that lenders are now demanding higher rates and tighter terms than during the lower-rate environment of the past 15 years, when structures such as delayed draw term loans became more prevalent. Sponsor-backed lending, the author says, fosters closer monitoring and stronger covenants.
The article does not dismiss risk. It identifies defaults as the most significant concern, noting that higher rates, a potentially slower economy, and margin erosion could pressure legacy and longer-dated issuers, and that a severe U.S. recession would negatively affect private debt portfolios. The author concludes that senior-secured private debt may still offer more favorable risk-adjusted returns than public equities and fixed income, with diversification benefits. The piece is a guest contribution, and the article notes that its views do not necessarily represent those of Advisor Perspectives.
The author acknowledges a concern that these instances of fraud may reflect systemic issues rather than isolated events. However, the article argues that senior-secured, first-lien lenders holding collateral such as buildings, inventory, or receivables were largely protected, and that many lenders with strong underwriting avoided both borrowers. It notes that senior-secured loans offer a legal right to seize collateral before other creditors are paid, distinguishing them from subordinated or mezzanine debt.
On valuation and structure, the article cites an annual yield of roughly 8% to 10% in senior-secured private credit, an illiquidity premium for investors accepting less liquidity than public markets, and floating-rate terms that provide inflation protection. It also observes that lenders are now demanding higher rates and tighter terms than during the lower-rate environment of the past 15 years, when structures such as delayed draw term loans became more prevalent. Sponsor-backed lending, the author says, fosters closer monitoring and stronger covenants.
The article does not dismiss risk. It identifies defaults as the most significant concern, noting that higher rates, a potentially slower economy, and margin erosion could pressure legacy and longer-dated issuers, and that a severe U.S. recession would negatively affect private debt portfolios. The author concludes that senior-secured private debt may still offer more favorable risk-adjusted returns than public equities and fixed income, with diversification benefits. The piece is a guest contribution, and the article notes that its views do not necessarily represent those of Advisor Perspectives.
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