The Credit Edge by Bloomberg Intelligence BDC Veteran Expects Private Credit Fund Stress as Banks Pull Back
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Mar 19, 2026 Michael Gross, co-founder of SLR Capital Partners and co-CEO of SLR Investment Corp., is a veteran in asset-based lending and BDCs. He discusses banks pulling back from private credit and the resulting cost of capital squeeze. He covers software concentration risk, fraud prevention and double-pledging, and why certain BDC strategies remain attractive for retail investors.
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Capital Flows Eroded Private Credit Underwriting
- Rapid capital inflows into private credit lowered underwriting standards as managers competed to deploy funds quickly.
- Gross links the non-listed BDC growth and incentives to weaker covenants, higher leverage acceptance, and faster underwriting.
Prioritize Manager And Asset Selection
- Prioritize manager selection and asset selection now that defaults are rising.
- Gross stresses the cycle makes manager and asset choice critical because past benign conditions hid differences in skill.
Covenant-Light Deals Raise Recovery Risk
- Expect higher loss-given-defaults due to looser covenants in recent deals.
- Gross cites Moody's historical ~70% recovery for covenant-heavy loans; modern covenant-light private credit could see recoveries nearer 40–50%.