Senator Elizabeth Warren called for a further examination of the exploding private credit market. On Thursday, S&P Global Ratings sent letters for Moody’s ratings and Fitch ratings and asked for information about how they scored the risk of special credit products.
Inside letter According to rating agencies, Warren said that over -optimistic credit ratings contributed to the 2008 financial crisis. He asked companies about how they managed potential conflicts of interest and how the methodologies of evaluating special credit products evaluate other products.
Warren reached the Treasury Secretary
Trump management will facilitate the investment of normal people, giving more fuel to the sector. For example, an executive order can help make private assets more accessible for pension plans 401 (K).
Warren also wrote a different letter on Thursday, asking the Treasury Secretary Scott Bessent to look at the size of the special loan market and how the US economy could affect the financial stability.
Senator Warren prints for clarity in the private credit market.
Asking the treasury sec. S&P explains how Moody’s and Fitch rated the risk of special credit products, while Bessent to assess the risks of size and stability. pic.twitter.com/8vm3axeraf
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Authorized, since last year, a government assessment, the private loan market has talked about possible security vulnerabilities, for example, lack of transparency and banks and other institutions to develop relationships, he said.
JPMorgan says that the private loan is risky
The private credit market is growing rapidly, which hurts the more regulated credit enterprises of banks. The amount of money obtained to lend to private capital -supported enterprises. It is the largest market component and has increased more than 100 since 2006 and reached approximately $ 700 billion in 2024.
JPMorgan and some competitors lost income as their new, irregular competitors grew. Jamie Dimon, CEO JPMorgan Chase said the private credit market is similar to the mortgage market before the 2008 financial crisis.
“Direct lending sections are good,” Dimon said at the event. “But not everyone does a great job and that’s what causes problems with financial products.”
So far, Dimon has started to provide debt financing for customers who make purchases and other agreements for the investment bank’s capital and to effectively launch a special credit operation within JPMorgan.
In addition, some investors expressed concerns about how special credit products were rated, which observed that companies that pack loans to support securities, such as secured debt obligations, can choose the rating providers.
However, according to SEC President Paul Atkins, special funds have dramatic in the last decade from $ 11.6 trillion to $ 30.8 trillion. “It can increase investment opportunities for retail investors who want to allow this option in line with investment time horizon and risk tolerances. He said at the conference in Washington.
A new strategy emerged independently to expand the loan
Great men like Apollo, Ares and KKR in the private credit industry use a very unique strategy. They give themselves credit. It is frequently supported by high -profit assets such as railway cars and data centers that keep borrowers locked for many years.
In exchange for connecting this money for about ten years, borrowers prepare to pay much more interest than they have to get money from a network bank. The reason for this is the guarantee of ratings from S&P and Fitch, the face of challenging contracts, and often long, expensive syndication process based on long waiting for financing.
In addition, these loans are equivalent to investment class bonds due to the “liquid premium” based on credit quality.
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