Private Credit, Wall Street’s Hottest Trade, Has an Ugly Moment

For years, as private credit exploded into a $1.7 trillion industry, the line from the market’s biggest players was that their deals were, simply put, safer.

Certainly safer than the high-yield bond market, and also safer than the leveraged loan market, where struggling companies could take advantage of weak investor safeguards and team up with hedge funds to aggressively restructure their debt at the expense of existing creditors.

That may still be the case. Deal documents are generally tighter in private credit; loans are financed by smaller “clubs” of lenders with deeper connections to companies and their private equity owners; ...