🥛 Is there a credit problem brewing? ⚠️

GM. This is Milk Road Macro, the newsletter that’s like playing Jenga with a loan book: everything’s fine until someone pulls the wrong “software” block.

Here’s what we’ve got for you today:

✍️ Everything you need to know about the escalating private credit chaos.
🎙️ The Milk Road Macro Show: “Heads I Win, Tails You Lose”: Why Bitcoin Wins No Matter What Happens Next w/ David Brickell.
🍪 The price of crude oil extended its move higher.

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EVERYTHING YOU NEED TO KNOW ABOUT THE ESCALATING PRIVATE CREDIT CHAOS

Are there credit problems brewing?

Private credit has always had a “quiet until it isn’t” reputation.

Recently, it’s starting to feel… less quiet.

Markets have been wobbling on a specific fear:

A credit problem triggered by illiquid private credit exposure - with software loans at the center of the story.

When credit stress shows up, it tends to arrive at the worst possible moment and tightens fast.

Price action is reflecting increasing anxiety: alternative managers are getting hit, banks are being dragged in, and anything “credit-sensitive” is being sold off.

So what’s going on?

Let’s take a look…

The basic issue (in plain English)

Private credit is lending done outside traditional banks.

Instead of borrowing in public bond markets, companies borrow from private credit funds.

Investors often like putting cash into private credit because yields can be attractive and the day-to-day pricing often looks stable (it’s not “marked-to-market” in the same way that a tradable public market is).

But there’s a catch: a lot of private credit is illiquid.

These loans don’t trade like stocks.

So if private credit investors want their money back, private credit managers either sell assets (often at bad prices), raise cash elsewhere, or restrict withdrawals (“gating”).

What happens if lots of people head for the exit at the same time?

Why software is the pressure point

We’ve seen a “software smash” in recent months.

A rapid re-rating in the value of software companies on the back of fears over AI disruption.

IGV (American software stocks) is now in a severe bear market (down 30%).

Although it’s been bouncing in recent days.

Source: TradingView

And a recurring theme across private credit and listed credit vehicles (BDCs) is software concentration.

Private credit companies are full of software exposure after gorging on the sector for years.

Source: Barclays

In a note, Barclays analyst Peter Troisi wrote:

“Software is the largest sector exposure for BDCs [private credit], at around 20% of portfolios, making the industry particularly sensitive to the recent decline in software equity and credit valuations.”

The new accelerant is the idea that AI may reprice parts of software faster than private credit lenders assumed.

For private credit lenders, cash flow is everything.

If cash flows become less predictable, the next step is simple: marks go down.

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EVERYTHING YOU NEED TO KNOW ABOUT THE ESCALATING PRIVATE CREDIT CHAOS (P2)

The “tide going out” phase

This is what makes private credit investors nervous: after years of debate about whether private assets were being valued too optimistically, the market is now getting real-world stress tests.

A few developments have poured gasoline on sentiment:

“Gates” and “structured liquidity” language in retail-facing vehicles. Moody’s ratings analyst Johannes Moller warned that redemption pressure is showing up across semi-liquid private credit structures and noted that “retail investors tend to be less patient and predictable than institutional investors.” Private credit firm Blue Owl “gated” (halted) redemptions.
Private credit firms are cutting dividends and writing down the value of assets. One example was described bluntly in the Financial Times coverage: a listed credit fund “tumbled… after reporting a jump in troubled loans”, with software exposures singled out for meaningful markdowns.
A particularly uncomfortable UK episode involving Market Financial Solutions, where creditors warned of possible “double pledging” of collateral. Bayes Business School lecturer Angela Gallo summarized the severity: “To put it bluntly… this is catastrophic.”

There’s also the psychology piece.

As one market commentator put it: “The tide is going out, and we’re going to find out who is swimming naked”.

UBS credit strategist Matthew Mish wrote: “Private credit stress is unlikely to remain contained”.

So what’s going on in markets?

Private credit stocks have been tumbling - particularly since the start of 2026.

Source: TradingView

But so what?

What does this mean for the rest of the market?

Well, closely-watched credit spread measures have also started to widen (rise) in recent weeks (meaning investors are demanding extra yield to hold riskier corporate or high yield bonds, relative to “safe” Treasuries).

Not to a concerning level - yet (still below March/April 2025 tariff tumult and 2022 bear market levels).

But they have been heading in the wrong direction (up).

Source: TradingView

And Goldman Sachs analysts report a correlation here - with spreads widening further specifically within sectors believed to be at risk of AI disruption, including software.

Analysts wrote: “Market participants have begun to demand more risk premium from issuers in industries most exposed to AI-driven disruption.”

Source: Goldman Sachs

More credit investors are realizing that parts of tech and anything potentially exposed to AI disruption could be a ticking time bomb, particularly among more leveraged borrowers.

Bank stocks have also been sold off modestly in recent weeks.

It’s tempting to think this is only “shadow banks”, but traditional banks are linked through credit lines, financing, and exposure optics.

When fear rises, markets often treat “banks + credit funds + alt managers” as one interconnected sphere.

Source: TradingView

Last Friday, Truist analyst Brian Finneran summed up the vibe: “The market is selling anything remotely credit-sensitive this morning.”

Why this might not be as bad as the headlines

There are reasons not to jump straight to “imminent widespread and systemic credit crisis”:

Liquidity events aren’t the same as insolvency events. Redemptions and gates can happen even if underlying loans are mostly money-good; the pain shows up as discounts, repricing, and ugly equity tape.
Big platforms can sometimes absorb stress. For example, Blackstone’s spokesperson said steps taken to meet redemption requests “underscore our conviction… and alignment with its investors.” (Even if skeptics roll their eyes, it matters that some funds can meet withdrawals without immediate forced selling.)
AI risk is uneven. Not every software company is instantly disrupted; some credit problems are classic execution and rate-cycle issues. Blackstone Credit’s Brad Marshall argued one high-profile markdown reflected the company underperforming due to “execution driven issues,” not AI.
Spreads can widen without a default wave. Credit often reprices risk premia first; defaults are a lagging indicator.

Bottom line

There are escalating fears within the private credit world.

Software loans in particular - and basically any loan tied to a sector believed to be under heavy disruption from AI - are coming under the microscope.

And it’s now spilling over into wider credit spreads and bank stocks.

This hasn’t reached “systemically concerning” levels yet - but it’s important to watch.

Watch credit spreads and bank stocks.

HEADS I WIN, TAILS YOU LOSE 🪙

In today’s episode, we sat down with David Brickell (Front Financial, Blue Coast Capital, former Lehman veteran) to talk macro, crypto, and how geopolitics and AI trends are colliding with markets.

Here’s what you’ll hear:

Why big geopolitical headlines trigger “position off” selling, and why correlations can spike toward 1 in shock events.
The oil playbook after a Middle East flare-up, why initial spikes can overshoot, and what fundamentals to watch next.
The “Fed put” and war funding loop, how deficits, debt issuance, and central banks can boost liquidity over time.
Bitcoin’s “heads I win, tails you lose” setup, plus what’s been weighing on BTC lately, from liquidity drains to AI-linked tech moves.

Hit play and see for yourself 👇️