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Private credit firms tighten rules on loan “sweeteners”
The move follows reports that some borrowers have delayed interest payments on loans totaling billions of dollars, prompting concerns that defaults are being understated.
Private credit lenders are moving to curb so called loan sweeteners as concerns grow that some borrowers are delaying interest payments, which could mask a higher default rate than markets currently reflect, according to WSJ Markets.
The outlet reports that borrowers have pushed back interest on loans worth billions of dollars, raising fresh scrutiny of the risks embedded in private credit portfolios.
WSJ Markets says the concern centers on the possibility of shadow defaults, where stress shows up first through payment delays rather than outright defaults.