Written by Bryan Lutz, Editor at Dollarcollapse.com:
There’s a reason Wall Street invented the term “private credit.” The word private does a lot of heavy lifting. It means no public filings, no mark-to-market pricing, no awkward quarterly calls where analysts can ask why your borrowers haven’t paid cash interest in eighteen months. Private credit is the part of the financial system that prefers to operate in the dark, which, as it turns out… is exactly where cockroaches like to live.
Private Credit is $2+ trillion corner of the lending world. It’s where asset managers and private equity firms extend loans directly to mid-size companies, bypassing banks and almost all regulation entirely. For the better part of a decade, it has been sold as the future of finance.
The financial engineering gets sold like this:
Higher yields, lower volatility, “sophisticated” underwriting.
The pitch was compelling (especially from big boys like BlackRock and BlackStone), and the money flooded in. First money came in from pension funds, insurance companies, sovereign wealth funds. Eventually, Ma and Pa through their hats in through their financial advisors. What could go wrong?
Quite a lot, as it turns out.
Dimon’s Cockroach Warning
Last year, on October 15, 2025, Fortune ran a prophetic piece:
Jamie Dimon issues private credit warning: ‘When you see one cockroach, there are probably more’
“My antenna goes up when things like that happen. And I probably shouldn’t say this, but when you see one cockroach, there are probably more. And so we should — everyone should be forewarned on this one.”
— Jamie Dimon, JPMorgan CEO, Q3 2025 Earnings Call
Dimon was reacting to the high-profile Chapter 11 bankruptcy of First Brands Group, an auto parts roll-up $10 Billion in debt borrowing itself into oblivion before collapsing in early 2025. JPMorgan itself had no exposure to First Brands, but it did write off $170 million in bad debt tied to Tricolor Holdings, a subprime auto lender that filed for Chapter 7 liquidation amid allegations of fraud, including the double-pledging of collateral to multiple lenders simultaneously.
To their credit, the major banks moved quickly to reassure investors that no bank runs were required. Goldman’s David Solomon called the book “very, very diversified.” Citi’s Mark Mason said his exposure was “predominantly investment grade.” JPMorgan’s own CFO Jeremy Barnum argued that private credit actors were “large, very sophisticated, very good at credit underwriting.”
But there was Jamie Dimon, the most prominent banker on Wall Street, going off-script with a pest-control metaphor.
What Dimon’s Caution Actually Means
Let’s be direct about what Dimon was saying, and what his colleagues were not saying.
The CFOs and CEOs of the big banks have every incentive to project calm. They have billions in loans outstanding to private credit funds, subscription lines, NAV facilities, and various fund-finance structures that depend on a functioning, confident market. U.S. banks’ total exposure to non-depository financial institutions(hedge funds, private credit, etc.) approached $1.2 trillion as of mid-2025, roughly 10% of all U.S. bank loans. That’s nearly triple the share from a decade ago. Nobody wants to be the one who shouts fire in that particular crowded theater.
Dimon’s admission was different in kind. He wasn’t talking about his own book, and he was warning that he couldn’t see other people’s books.
“We don’t even know the standards of other banks’ underwriting to some of these entities,” he said.
“And I would suspect that some of those standards may not be as good as you think.”
That’s a remarkable thing for the CEO of the largest U.S. bank to say publicly. Private credit was supposed to be better than the syndicated loan market. It has fewer lenders, more control, tighter covenants, and direct relationships with borrowers. Instead, as deals got larger and more complex, the same loosening dynamics that infected every previous credit boom took hold: covenant-lite structures, payment-in-kind interest provisions that let borrowers defer cash payments, and aggressive “liability management exercises” that let majority lender groups strip minority holders of their protections.
The headline default rate in private credit still reads around 1.5–2%. But analysts who account for PIK toggles, selective defaults, maturity extensions, and restructurings estimate the “true” stress rate is closer to 5%. That’s a different picture, and it’s one that doesn’t show up in the quarterly reports.
Here’s Your Next Cockroach
If Dimon’s warning felt abstract, here’s a look at what could be happening behind-the-curtain of the private credit industry across America.
The Wall Street Journal reports:
How Fake Invoices Duped BlackRock Unit Into a $400 Million Loan
“Analysts at HPS Investment Partners — the private-lending specialist acquired by BlackRock in July 2024 — uncovered that a more than $400 million credit exposure they had extended to a telecom entrepreneur was built on fraudulent invoices, fabricated customer confirmations, and fake email domains. The alleged scheme didn’t rely on exotic financial engineering. It relied on something far more unsettling: paperwork that looked ordinary enough to pass multiple checkpoints until one small inconsistency cracked the story open.”
The entrepreneur in question, Bankim Brahmbhatt, had been borrowing against telecom receivables his companies claimed were owed by major carriers. According to court filings, those receivables were largely fabricated. Every customer email used to verify invoices over a two-year period was fraudulent. A Belgian telecom company, BICS, confirmed it had no connection whatsoever to the emails provided. By August 2025, his companies had filed for Chapter 11, his New York offices were locked and deserted, and federal prosecutors had opened an investigation.
The loan was written down to zero.
An Uncomfortable Truth About America’s Private Credit Structure
The HPS/BlackRock case would be easy to dismiss as a one-off bad actor, but that framing misses the structural point entirely.
The thing is, HPS was not a small, unsophisticated lender. It was one of the most respected names in private credit, founded by Goldman Sachs alumni, managing tens of billions of dollars, with the compliance infrastructure you’d expect of a firm large enough to attract BlackRock’s attention. The fraud wasn’t caught by HPS’s elaborate due diligence machinery. In the end, it was caught because one junior analyst noticed that an email domain didn’t match a company’s website. The entire third-party verification, legal review, and institutional process had let it through.
Now, here’s the private credit market’s dirty secret as it has scaled toward $2 Trillion. The asset class increasingly relies on document-heavy collateral. In most cases. those documents take too much administrative work to deal with. And that means, invoices, receivables, and supply-chain finance arrangements that are only as real as the data used to verify it. So, the incentive to ask hard questions competes with the incentive to close transactions.
First Brands.
Tricolor.
Blue Owl.
HPS/BlackRock.
These are not random events. They are, as Dimon suggests, the cockroaches you can see. They imply a larger population you cannot.
More cockroaches are coming…
In 2026, so far only $56 billion of lower-rated private credit debt matured. By 2028, more debt will come due. The figure is projected to hit $215 billion with roughly 30% of those borrowers carrying leverage above 10x or negative EBITDA.
Final Thoughts
Private credit isn’t going away. It does fill a genuine need in the economy, and many managers run disciplined, well-underwritten books. But the asset class has grown faster than the mechanisms that are supposed to keep it honest:
Transparency, third-party verification, mark-to-market pricing, and regulatory oversight.
The optimists will say these defaults are just part of a developing industry. However, it’s best to remember that every credit crisis in history was described as “growth” right up until it wasn’t.
