Private Credit Borrowers Face Added Pressure From Higher Energy Costs And Refinancing Wall

According to CNBC, soaring energy costs are adding pressure to private credit borrowers already dealing with higher interest expenses and a steep refinancing wall, while U.S. West Texas Intermediate futures traded at $99.02 a barrel and Brent crude at $103.64 on Friday morning. The article said markets are pricing in a near-70% chance of a U.S. rate increase this month, and Fitch Ratings' U.S. private credit default rate reached a record 6.1% in the 12 months through July. Anant Kumar, global investment strategist at Benefit Street Partners, said energy-driven inflation is a bigger risk to private credit borrowers than higher rates alone, while Sunaina Sinha Haldea, global head of private capital advisory at Raymond James, said the refinancing wall is more likely to unfold gradually through amendments, extensions, equity injections and restructurings. Lotfi Karoui, multi-asset credit strategist at PIMCO, said the bigger risk is a combination of restrictive policy and weaker growth that hurts cash flows and debt-servicing capacity, and Matthew Pallai, chief investment officer for private credit at Nomura Asset Management, said lower-quality credits would need another 50 to 100-plus basis points of yield increases before market outcomes are materially affected.