Private Credit Default Rates Could Hit 15%, UBS Warns

Cites research that AI "is going to eat the lunch of software as a service companies" and that this perception is a "problem for negotiating the price of those services and then the default rate." A significant portion of private credit books are allocated to private equity-backed SaaS companies. If AI reduces the pricing power (moat) of legacy SaaS, their cash flows will degrade, leading to the specific default wave UBS is warning about. SHORT legacy SaaS companies that lack a clear AI strategy, as they are the "ground zero" for the predicted credit stress. AI integration might actually lower costs for SaaS companies, improving margins rather than destroying them.

UBS warns "private credit default rates could surge 15%." The speaker notes "new limits for retail investors" regarding "Blue" (likely Blue Owl) and mentions critical views from Citron Research. Private Credit and BDCs (Business Development Companies) have thrived in a low-default, low-rate volatility environment. If defaults hit 15% and retail liquidity is gated (limits on withdrawals), valuations will compress, and fee income for the major asset managers (Blue Owl, Blackstone, Ares) will be challenged. SHORT / AVOID exposure to private credit managers and BDCs until default rates stabilize. Private credit structures (bilateral negotiation) may allow managers to "extend and pretend," masking true default rates and keeping NAVs artificially stable.