Why Nobody Defaults Anymore (w/ Kenny Tang, PitchBook)

Private credit has evolved into a massive asset class, shifting from traditional bank lending to non-bank institutions following the 2008 financial crisis. Kenny Tang, Head of U.S. Credit Research at PitchBook, explains the mechanics of this market, including the prevalence of "covenant-lite" loans and the rise of liability management transactions (LMEs) as alternatives to traditional bankruptcy. Recent market stress, particularly in the software sector, has been exacerbated by AI disruption and geopolitical instability, leading to increased non-accruals and distressed debt trading. While default rates remain historically low, the industry faces challenges in managing workouts, especially as maturity walls are pushed into the future. Investors must scrutinize underlying cash flows and unit-level performance rather than relying on historical growth, as the current environment demands a more rigorous approach to credit risk and restructuring than the previous decade of expansion.