Private Credit Selloff Fuels Bank Contagion Fears as Loan Markdowns Spread
Private credit faces rising redemption pressure and loan markdowns, which could shrink bank leverage and tighten funding, risking a negative feedback loop as redemptions drive asset sales and valuations stay stressed. Public BDCs trading below NAV signal investor distrust of private-loan values, especially for software-related exposure. A meaningful re-rating would likely require a geopolitical catalyst like the Strait of Hormuz reopening, which isn’t expected soon. The author notes their short stance on the sector amid ongoing stress and liquidity risk.