Private Debt Should Face ‘Full-Blown Default Cycle,’ Pimco Says

With record fundraising after the 2008 financial crisis, direct-lending vehicles have loosened their underwriting standards and are due for a stress test, according to a Pacific Investment Management Co. analysis of private-credit risks.

“Like every mature segment of leveraged finance, direct lending should eventually face a full‑blown default cycle – one that would test its resilience to both sector‑specific and macroeconomic shocks,” analysts Lotfi Karoui and Gabriel Cazaubieilh said in a note to clients Friday.