The Wrap: Private Credit and the Run on Liquidity

This week, “The Wrap” features our view of the key events in Washington and on Wall Street over the past week. We also include a special review of market opportunities for our Premium Service subscribers. On Monday we’ll be updating the WGA Precious Metals Top 25 rankings. Don’t forget to watch “The Wrap” on The Julia LaRoche Show every Saturday on YouTube to catch our discussion of what’s hot and what’s not in the world of finance and investing. 

Private Credit: Repricing Lazy Leverage

March 6, 2026 | This week is one of those classic risk-off periods that financial professionals will painfully remember for many years. Through much of last year, the accumulation of leverage behind all manner of assets, good and bad, seemed to have no cost, but this was never true. QE drove asset prices up and apparent credit expense and market risk down, but only for awhile. As we noted in 2017 in one of our first comments for The Institutional Risk Analyst (“Trump and the Age of Magical Thinking”): 

“Anyone taken as an individual is tolerably sensible and reasonable – as a member of a crowd, he at once becomes a blockhead.”

Friedreich von Schiller

Quoted by Bernard Baruch 

The year 2025 was another year of magical thinking ℅ Donald Trump, a man whose mere presence in the room causes everyone else to descend to their most base level. Trump came to Washington as a president who spurned convention and embraced crypto currencies. He rejected New Deal regulation and shamelessly encouraging greed and self-interest in a way not seen since the years following WWI. The impact on financial markets is profound and may continue for some time. 

The credit shops are getting shellacked in the equity markets, as we predicted months ago, but that is the price of 1) being public and 2) selling credit crapola to retail investors. The Iran conflict serves nicely as an accelerant for contagion, both for shorting the stock of credit managers and the affiliated funds. Risk arb traders dream of days like the past week. But as discussed below, market contagion ℅ President Donald Trump also creates opportunities.

When Apollo (APO) CEO Marc Rowan said that this past week is "a shake out," we hope he is not talking about himself. APO unit Atlas SP got rolled in the MFS default in the UK, where the bankrupt firm doubled pledged collateral a la First Brands. 

The successor to the storied real estate finance group of Credit Suisse, Atlas seemingly committed a total failure of risk management with respect to this UK mortgage issuer. Yet MFS is just the latest omission in a lengthening list of financial disasters in the post COVID years. APO is down 20% in the past 90 days. Is it a buy? 

BlackRock TCP Capital Corp (TCPC), a public business development company (BDC) managed by BlackRock (BLK), reported a nearly 20% decline in net asset value in January 2026. The stock price of TCPC has been cut in half in 2026, hitting record lows. BDCs have relatively low leverage, but they are vulnerable to credit losses. The entire BDC universe is trading at a 30-40 point discount to par today.

The drop in TCPC was largely attributed to a few bad investments, including exposure to e-commerce aggregators and the bankrupt Renovo Home Partners.  BLK is down only single digits over the past 90 days, but new revelations about losses in its credit portfolio may force the stock lower.  How can anyone believe a word from BLK officials when these revelations keep trickling out?

Like many private equity schemes, Revco suddenly filed for Chapter 7 bankruptcy liquidation in Delaware on November 3, 2025. This move followed an abrupt cessation of operations in October, 2025, which left thousands of customers with unfinished projects and employees without notice or pay. BLK has no offered to make the creditors of Revco whole.

BlackRock’s Scott Kapnick, who leads the firm’s private credit business, said at a Bloomberg event that the biggest players will capitalize on the current industry turmoil while some of its smaller lenders may get left behind. “Most of the big managers are very good at managing risk, and the scaled players are going to continue to benefit from this period,” Kapnick opined. 

Only days later, BLK was forced to declare another loan valued at 100 cents on the dollar in December, a $25 million advance to Infinite Commerce Holdings, as having zero value today. The investment was a second-lien loan. The company reportedly had been using a payment-in-kind (PIK) mechanism, allowing them to defer interest payments on debt.

We hear that some BDC’s, asset managers, insurers, or hedge funds have pressed banks to expand non-recourse financing transactions for private credit loans which they own---but cannot sell or monetize. Fund sponsors lack sale liquidity and portfolio cashflows to meet rising investor redemption demands, as loans increasingly are moving to payment-in-kind (PIK) and Principal Onto Original Principal (“POOP”), which accretes in lieu of defaulted interest/principal cashflows. (H/T Victor Hong)

As we noted in The IRA Bank Book Q1 2026, major banks are already well above their eyeballs with private credit non-recourse financing transactions and regulators are watching.  Just as private credit managers had to see a run on funds when retail investors became involved, non-recourse bank loans to busted private equity companies must end up in total loss. 

The selloff in the financial markets was accelerated by the widening war between Iran and the US and Israel. A number of pundits have asked about the “endgame” in the US decision to launch attacks on Iran, but the truth is that there is nobody to negotiate with in Iran as long as the revolutionary leadership remains in place. The US and Israel are simply degrading Iran’s military capabilities with brute force.  There is no endgame.

In Washington, another Republican legislator has announced retirement. “Sen. Steve Daines (R-Mont.), the 63-year-old former NRSC chair, announced late Wednesday that he won’t seek a third term in the Senate,” Punchbowl News reports. “Daines withdrew from the November ballot just minutes before the 5 p.m. filing deadline. That was around the same time that Kurt Alme — the U.S. attorney for Montana — filed to run for the seat.”

As of early March 2026, 32 Republican representatives have announced they will retire from the House after this year, according to a report in The Washington Post. A dozen members of the Senate have announced their retirement, mostly Republicans. Including both House and Senate, this represents a historically high rate of turnover by members of both parties.

Trumpian Analogs 

It is worth reminding our readers that the Teapot Dome scandal (1921–1924), which involved the secret leasing of federal oil reserves to private companies by Interior Secretary Albert Fall, was one of the precursors to the Great Crash of 1929. Like Donald Trump, President Warren Harding (1921-1923) promised a “return to normalcy” after years of inflation and economic recession following WWI.  Trump ran against "the endless wars" of Joe Biden, but now has made common cause with Israeli leader Benjamin Netanyahu in attacking Iran.

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