Tension in the private credit market is shifting from "concern" to "pricing." As investor skepticism grows regarding risks associated with artificial intelligence, liquidity, and lending standards, a fund managed by US-based New Mountain has opted to sell nearly $500 million in assets at a discount, signaling increased pressure within the industry.
According to a Bloomberg report, New Mountain stated on Tuesday that one of its private credit funds sold $477 million in assets for "94 cents on the dollar." The move aims to enhance portfolio diversification, reduce PIK (payment-in-kind) income, and improve financial flexibility.
This disposal occurs amid significantly heightened discussions about private credit risks. Just a week prior, Blue Owl closed the redemption window for one of its funds and began selling portions of its direct lending investments to return capital to investors. This action triggered a $2.4 billion decline in its market value and contributed to share price weakness for other private credit firms like Ares Management and Blackstone.
Market alarms are sounding frequently. Boaz Weinstein, founder of Saba Capital, stated that private credit is in the early stages of a breakdown, with industry concerns centered on excessive AI-related spending, exposure to software investments threatened by AI, and lending standards.
A UBS report indicated that default rates in private credit could potentially surge to as high as 15%, and the misalignment risk between funding sources and assets is being reassessed.
**New Mountain's Discounted Trade: Reducing PIK and Adjusting Portfolio Structure** New Mountain has characterized this sale as an active portfolio rebalancing. The company stated the transaction's purposes include increasing investment diversification, reducing PIK income, and enhancing financial flexibility. Company executives had informed investors late last year of plans to sell up to approximately $5 billion in assets; this transaction's size is close to that target.
From an industry perspective, the transaction price of "94 cents on the dollar" is itself a signal. During a period of heightened sensitivity to valuation and liquidity, a discounted sale is more readily interpreted by the market as a "deleveraging adjustment" amid declining risk appetite.
New Mountain also disclosed that within its overall portfolio, business services account for 22.4% and software for 22.2%. The latter sector is currently at the center of market debates concerning AI's impact on software business models.
**Asset-Side Returns Under Pressure: NAV Decline, Dividend Cut** New Mountain's own financial metrics reflect that pressure is building. The company reported that its BDC's net asset value per share decreased to $11.52 in the quarter ended December 31st, down from $12.06 the previous quarter.
Concurrently, the company reduced its dividend from $0.32 to $0.25 per share, citing pressure on earnings due to falling interest rates and tightening credit spreads.
The company stated it has repurchased $30 million in stock since the end of the third quarter of 2025 and expects to continue buybacks this year. CEO John Kline described this action as "highlighting confidence in NMFC's long-term value."
**Spillover from Blue Owl Liquidity Turmoil: Valuation and Structure Repricing** A broader shock stems from industry-wide liquidity pressures. Following its redemption restrictions, Blue Owl began selling parts of its direct lending investments to return investor capital, as reported by Bloomberg. This event precipitated a $24 billion drop in its market capitalization and led to concurrent share price declines for several related private credit companies.
This chain reaction has intensified investor scrutiny of semi-liquid product mechanisms. When redemption demands rise and underlying asset trading is not smooth, fund structures, asset valuations, and exit paths can come under simultaneous pressure, causing risk premiums to increase.
**AI Concerns Coupled with Default Expectations: Discounted Sales and "Bargain Hunting" Coexist** Discussions surrounding AI are becoming a part of the private credit risk narrative. Boaz Weinstein attributes industry fractures to excessive spending on AI, exposure to software threatened by AI, and lending standards. He also points to a market dislocation: while some credit asset prices are at historical highs, related stocks and fund structures are experiencing "significant discounts."
His firm, Saba Capital, alongside Cox Capital, has announced cash tender offers for interests in three funds managed by Blue Owl, at discounts of 20% to 35% below the funds' disclosed net asset values. This aims to provide a liquidity solution for retail investors seeking to exit but facing difficult redemption conditions.
The related offers involve Blue Owl Capital Corporation II and are planned to extend to Blue Owl Technology Income and Blue Owl Credit Income. Bloomberg reported that Blue Owl's stock price has fallen approximately 50% over the past year, despite rising company revenues during the same period.
On the risk side, UBS Group AG's projection of potential default rates "reaching up to 15%" has raised the market's expectations for future losses. On the funding side, figures like Weinstein are attempting to view these discounts as opportunity windows. For investors, the key variables are shifting from "yield levels" to "structural liquidity, valuation credibility, and the repricing speed of AI-related exposures."
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