Alternative‑credit manager Sona Capital released a report titled “Private Credit: An Honest Assessment”, shaking the sector’s complacency. The brief praises the asset class for term renegotiations, PIK options and the lack of mark‑to‑market volatility, noting borrowers avoid disclosure burdens while lenders enjoy spreads. Authors Craig Nicol and Owain Griffiths aim to spark disciplined scrutiny across the $1.5 trillion market.

Critics argue the market now houses loans that could not secure collateralised loan obligation funding, relying on inflated loan‑to‑value ratios and “bad” PIK structures. Sona calculates an adjusted default rate of 5.4 %, comparable to syndicated loans, and points to a surge of mid‑deal PIK insertions. The authors blame a flood of insurance capital for compressing spreads and encouraging pro‑cyclical deployment.

Portfolio construction, the report warns, resembles a patchwork of opportunistic deals rather than a disciplined, cash‑flow‑driven strategy. Concentrations in AI‑exposed sectors and equity stakes in distressed borrowers amplify risk, while limited redemption windows keep investor capital locked, masking underlying weakness. Investors should therefore impose tighter covenants and demand genuine portfolio management rather than rely on the sector’s historical resilience in the near term.