Banks tighten terms on private credit funds as collateral disputes rise

Private credit funds are facing increasing pressure from banks that are tightening leverage terms and more aggressively reassessing collateral values, adding strain to a sector already dealing with investor withdrawals, according to a report by Bloomberg.
Banks including JPMorgan Chase, Goldman Sachs and Barclays have been raising interest rates on lending facilities and, in some cases, marking down loans used as collateral in fund portfolios. These adjustments are prompting some private credit managers to reshuffle assets within financing structures, according to people familiar with the discussions.
While banks have long retained rights to revalue collateral, industry participants say such actions are becoming more frequent amid broader market volatility. Lenders are also paying closer attention to exposures in sectors seen as vulnerable to disruption, including software companies facing potential AI-driven competition.
Executives at major banks say the measures are intended to manage risk within existing facilities. JPMorgan CEO Jamie Dimon noted that lenders typically retain contractual rights to review underlying collateral values as part of standard risk protections.
The tightening environment is affecting a funding model that has supported rapid growth in private credit, now a roughly $1.8tn asset class. Funds have historically relied on bank leverage to enhance returns and manage liquidity, but higher borrowing costs and stricter terms are beginning to compress performance.
Some leverage costs have risen by 50 to 150 basis points, with spreads in certain arrangements now exceeding three percentage points above benchmark rates, according to market participants. That shift is reducing return buffers for fund managers and increasing pressure to maintain performance through higher lending spreads.
At the same time, disputes over asset valuations are leading to more active portfolio management. In some cases, banks have required funds to replace or reallocate assets within collateral pools, while others have applied markdowns that can trigger margin pressure depending on leverage levels.
Different lenders are taking varying approaches to valuation rights, with some requiring more flexibility to adjust marks or negotiate collateral values. Others rely on third-party mechanisms or more limited revaluation triggers.
The divergence is prompting some fund managers to reassess banking relationships and diversify sources of financing, particularly where unilateral markdown rights are viewed as too restrictive.
Although banks have expanded exposure to private credit – recently estimated at around $180bn across major US lenders – they continue to describe the asset class as relatively resilient. However, market participants say ongoing adjustments to leverage structures could reduce fund returns and potentially contribute to further redemption pressure if performance weakens.