Private Credit Is Now Funding the Deals Banks Won't: What That Means for Diligence
Private credit now funds about 90% of US mid-market buyouts, closing faster than a bank loan but with fewer built-in checks. Two 2025 bankruptcies — First Brands and Tricolor — show what happens when collateral isn't independently verified, and what lenders are checking more closely now.
Private credit is money lent to companies by investment firms instead of banks. It has become one of the biggest ways mid-sized US companies now borrow money to buy other companies, moving faster than a bank loan but with fewer built-in checks. When a mid-sized US company borrows money to buy another company, it usually isn't a bank writing the check anymore. It's a private credit firm — a non-bank lender that raises money from investors and lends it directly. Two recent bankruptcies show why the checks on that lending matter. In September 2025, auto parts company First Brands Group collapsed owing about USD 11.5 billion, with only USD 12 million left in cash. It had pledged the same unpaid customer invoices to several lenders at once. Around the same time, Dallas lender Tricolor Holdings failed the same way, claiming USD 2.2 billion of collateral when only about USD 1.4 billion actually existed. Neither was financed by a bank. Both were financed by private credit.
Why Private Credit Took Over from Banks
After 2008, regulators — through rules known as Basel III, and later tightened further — said banks must hold extra capital in reserve for riskier loans, essentially a cushion of the bank's own money that just sits there and doesn't earn anything, in case the loan goes bad. The new rules made it costlier for banks to lend to mid-sized companies, so many pulled back. The riskier the loan is considered, the more capital the bank has to set aside against it. Private credit filled that gap: the US market has grown from about USD 500 billion to roughly USD 1.3 trillion in five years. By 2024, private credit funded about 90% of mid-market buyouts in the US. These deals move fast, often closing in weeks, compared to four to eight weeks for a bank-led deal, but they cost more.
What Went Wrong at First Brands and Tricolor
Both companies used the same collateral — the outstanding receivables, some of which turned out to be fabricated — to borrow from multiple lenders who never properly checked with each other. Because much of this debt was hidden off the books, lenders who thought they were exposed to about 5 times First Brands' earnings were really exposed to closer to 20 times once the truth came out. Cambridge Associates calls these company-specific frauds, not a sign private credit itself is broken, and points out that overall loan performance has actually been improving. Still, regulators are now watching private lenders more closely.
What Lenders Are Checking More Closely Now
• An independent review of the company's real earnings, instead of just trusting the seller's numbers. • Direct proof that collateral and unpaid invoices actually exist, and aren't already pledged elsewhere. • Regular check-ins and reporting after the deal closes, not just before. • A cap on how much revenue can come from any one customer, so one lost account can't sink repayment.
MARC's View
Speed is private credit's whole appeal. But a fast deal is only a good deal if the numbers behind it were properly checked. Companies that can prove their earnings and collateral are real get financed quickly and cheaply. Companies that can't find it slower, costlier, or impossible.
Where MARC Comes In
• Independently reviewing a company's earnings and testing its add-backs. • Confirming collateral and invoices are real and not pledged elsewhere. • Modelling the company's true debt load, including anything hidden off the balance sheet. Speak with MARC's advisory team to stress-test your next mid-market financing before you close.
FAQs
Why has private credit replaced banks in mid-market deals? Banks pulled back after new capital rules made mid-market lending costlier. Private credit now funds about 90% of these deals, closing faster than a bank-led deal, though at a higher cost. What did First Brands and Tricolor reveal? Both pledged the same collateral to multiple lenders without proper checks. First Brands owed USD 11.5 billion against just USD 12 million in cash when it collapsed, and its real debt load was far higher than lenders believed. What should borrowers prepare before a private credit deal? An independently reviewed set of earnings and clearly verified collateral. Companies that show up with this get priced and closed faster.
Key Takeaway
About MARC Research Team
Our research team comprises experienced financial analysts and consultants with over 50+ years of combined experience.
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