Private credit: what consequences for credit markets overall ?

Private credit is rapidly expanding, facilitated by supportive regulations. However, along with the exponential growth of this asset class, come potential risks: those include deteriorating underwriting standards (as seen in some BDCs), significant exposure to secular, cyclical, and idiosyncratic risks, such as those in the software sector and undisclosed leverage;We conducted a Natixis scoring grid analysis through a deep sample review, revealing that risks extend beyond commonly cited BDCs.In our view, the current narrative on private credit is mainly driven by fraud and liquidity mismatches in retail funds, not a consequential decline in underlying asset quality at this stage;Banks' balance sheet exposure to private credit looks limited, disintermediated through NDFIs/NBFIs and absorbable by their profits;We're however wary of the associated possible negative investor sentiment impacting banks' liquidity, which could be the primary transmission channel for this risk;We believe contagion to the European HY/Loan credit market is likely to be limited vs the US, primarily due to the smaller size of its private credit retail market and its lesser exposure to the software sector when compared to the U.S.