# The Private Credit Blow is WORSENING | Another Collapse Source: https://www.youtube.com/watch?v=5SUQFfcNtyU Recap page: https://rapidrecap.app/video/5SUQFfcNtyU Generated: 2026-01-27T19:04:11.205+00:00 --- ## Quick Overview The private credit market is showing growing stress, evidenced by Apollo taking a $170 million 100% loss on a 'protected' loan to Amazon aggregator Perch, simultaneous with a surge in Payment-In-Kind (PIK) loans and the Bank of England warning about potential systemic issues, suggesting that the easy money era for risky private credit is ending. **Key Points:** - Apollo took a $170 million 100% loss on a loan to Amazon aggregator Perch, despite the loan being touted as 'downside protected'. - The use of PIK (Payment-In-Kind) loans in private credit has surged, rising 81% from 6.2% in Q3 2021 to 11.2% in Q1 2024, signaling increased borrower distress. - The Bank of England referred to the recent collapse of Tricolor Auto as a 'possible canary in the coal mine' for the private credit sector. - The private credit market is projected to grow from $3.4 trillion in 2025 to $4.9 trillion by 2029, despite underlying risks. - Fund managers see private equity/credit (39% in Jan-26) and AI hyperscaler capex (35% in Jan-26) as the most likely sources of a systemic credit event. - The complexity of fraud schemes, like the $500M+ fraudulent loans from Bankim Brahmbhatt involving fabricated invoices and collateral fraud, highlights systemic weaknesses. ![Screenshot at 00:21: The speaker displays a Bloomberg headline detailing how Apollo took a 100% loss on a 'protected' loan to Perch, introducing the theme of hidden risks in private credit.](https://ss.rapidrecap.app/screens/5SUQFfcNtyU/00-00-21.jpg) **Context:** The video discusses escalating risks within the private credit market, drawing parallels to the 2008 financial environment but focusing on current indicators like rising PIK usage and recent high-profile failures. The speaker uses examples like the Apollo/Perch loan loss and the Tricolor Auto collapse to illustrate that supposedly 'protected' investments are vulnerable, suggesting a tightening credit cycle is underway as high interest rates make it harder for heavily indebted companies to service their debt. ## Detailed Analysis The speaker highlights a significant failure in the private credit market where Apollo suffered a $170 million 100% loss on a 'protected' loan to Perch, an Amazon aggregator. This event serves as a major indicator of stress, especially since the loan was marketed as having downside protection. This situation mirrors issues from 2008 but is now amplified by the growth of private credit, which is projected to hit $4.9 trillion by 2029. A key metric showing this stress is the surge in Payment-In-Kind (PIK) loans, which jumped 81% from Q3 2021 to Q1 2024, meaning borrowers are increasingly paying interest with more debt rather than cash. The speaker cites the Bank of England calling the Tricolor Auto collapse a 'canary in the coal mine' for private credit issues. Furthermore, a Bank of America survey shows fund managers overwhelmingly fear private equity/credit issues (39% in Jan-26) and AI capex spending (35% in Jan-26) as the next systemic credit event sources. The speaker also details the Bankim Brahmbhatt fraud ($500M+ in fraudulent loans) and the Sonder Hotel bankruptcy as examples of systemic risk where complex fraud is unraveling, suggesting that the era of easy money funding risky ventures is ending, forcing a credit tightening cycle. ### Private Credit Stress Indicators - Apollo took $170M 100% loss on Perch loan - PIK loans surged 81% since late 2021 - Bank of England called Tricolor a 'canary in the coal mine' - Large number of individual investors requesting redemptions from private funds. ### Projected Systemic Risks (BofA Survey Q2 2025) - Private equity/credit is the top concern at 39% - AI hyperscaler capex is second at 35% - US consumer credit is the least feared source at 4%. ### Fraud Anatomy (Brahmbhatt Case) - Scheme involved fabricated invoices, forged email domains, and using fictitious receivables as collateral for over $500M in fraudulent loans. ### Private Credit Market Context - Market projected to hit $4.9T by 2029 - BlackRock TCP cut NAV by 19% in Jan 2026 - Blue Owl fund saw 15% redemptions primarily from Asian clients. ### The PIK Mechanism - Lenders allow borrowers who lack cash to pay interest by adding it to the principal debt, allowing lenders to count it as immediate income, which is problematic when rates rise and debt service becomes impossible. ![Screenshot at 00:21: A Bloomberg headline showing Apollo taking a 100% loss on a 'protected' loan, illustrating immediate, severe risk realization in private credit.](https://ss.rapidrecap.app/screens/5SUQFfcNtyU/00-00-21.jpg) ![Screenshot at 01:20: A chart titled 'PIK Surge Points to Growing Stress in Private Credit' showing PIK as a percentage of NII rising sharply after Fed rate hikes began, indicating borrower distress.](https://ss.rapidrecap.app/screens/5SUQFfcNtyU/00-01-20.jpg) ![Screenshot at 02:40: A slide projecting the Private Credit market size to grow to $4.9 Trillion by 2029, contrasting with the underlying distress being discussed.](https://ss.rapidrecap.app/screens/5SUQFfcNtyU/00-02-40.jpg) ![Screenshot at 10:25: A slide detailing the 'Anatomy of the Fraud' involving $500M+ in fraudulent loans through fabricated invoices and collateral fraud.](https://ss.rapidrecap.app/screens/5SUQFfcNtyU/00-10-25.jpg) ![Screenshot at 16:37: A bar chart showing PIK growing in importance for BDCs after interest rates soared, with Prospect Capital and FS KKR Capital showing significantly higher PIK risk than the 16% industry average.](https://ss.rapidrecap.app/screens/5SUQFfcNtyU/00-16-37.jpg)