Bold claim: Blackstone’s top boss argues private credit isn’t the weak link behind auto sector bankruptcies—and he backs it with a wider view of risk in the financial system. Stephen Schwarzman, CEO and Co-Founder of Blackstone, said on Tuesday that he does not share the market worries about private credit connected to the recent auto-industry bankruptcies. During a video presentation at Abu Dhabi Finance Week, Schwarzman stressed that several high-profile bankruptcies in October were driven by other factors, not private credit.
He argued that the deals in question were driven by banks from start to finish—due diligence by banks, underwriting by banks, syndication by banks—and that private credit wasn’t involved in the core decisions. In his view, private credit merely appeared to be “not in the room” for these particular cases.
These events include the collapses of First Brands and subprime auto lender Tricolor. Their failures have led some debt investors to reduce exposure in certain sectors and have contributed to a cooling in the broader credit rally. The episode has intensified scrutiny of a market that has expanded rapidly in recent years, with substantial institutional investment and a rising level of corporate lending.
Schwarzman contrasted the leverage levels of banks and private credit, noting that banks were leveraged at least 10-to-1, while private credit was around 1.4-to-1. He asserted that private credit remains more conservative for the financial system overall.
Bottom line: Schwarzman’s take challenges widespread concerns about private credit’s role in notable auto-sector defaults, arguing that the root causes lay elsewhere and that private credit maintains a more cautious footprint than traditional bank lending.
What do you think about the balance of risk between private credit and bank financing after these recent episodes? Is private credit truly insulated from systemic weaknesses, or are there underlying fragilities that could surface in future downturns?
