2025 Year-End Review

As we near the end of the year, I wanted to do a 2025 Covenant Lite recap.

I started Covenant Lite at the beginning of the year with few expectations, but the response has been amazing. CL now has over 2,300 subscribers and articles that have been read nearly 100,000 times (!!!).

Over the course of the year, I published 47 articles covering a wide variety of topics such as the history of private credit, the rise of private credit secondaries, the erosion of covenants in leveraged lending, survivorship bias in private credit indices like Preqin, how private credit is fueling the AI infrastructure buildout, increasing interest in asset-based finance and many others.

The five most-viewed posts on Covenant Lite according to page views were:

The selloff in public BDCs, which accelerated during the summer, was a big story in 2025. Public BDCs traded down to historically deep discounts to NAV, levels usually associated with major credit crises, despite credit metrics such as defaults and non-accruals remaining near cyclical bests. I speculate on what is going on.

Cliffwater transformed from a middling alts consultant into a private credit power player by recognizing earlier than others that retail was the next major growth driver for private credit. Cliffwater’s flagship interval fund, CCLFX, has scaled from $50 million to over $32 billion in six years at a >100% CAGR.

Oliver Wyman estimates that insurance companies now fund 43% of the private credit AUM at the seven largest listed private markets managers, representing nearly $1 trillion of $2.3 trillion. While often framed as a new structural shift, this resurgence largely revives insurers’ historic role as America’s primary long-dated private lenders, spanning post-war infrastructure and the early high yield market.

KKR has methodically built asset-based finance into a core private credit pillar, growing it from inception in 2016 to roughly $74 billion in AUM by mid-2025 (about 28% of its $261 billion credit platform). The strategy centers on owning and controlling 19 specialized lending platforms and programmatic forward-flow partnerships, giving KKR durable, repeatable deal flow with tight underwriting control rather than relying on competitive auctions.

Healthcare practice roll-ups have emerged as one of the most concentrated pockets of stress in private credit, with KBRA data showing weak interest coverage (1.1×), the highest negative-cash-flow incidence, elevated PIK usage, and the highest default rate of any tracked subsector. BDCs holding a meaningful share of the ~$45B of roll-up debt are increasingly relying on amend-and-extend and PIK tactics that may defer, rather than prevent, an emerging wave of defaults.

I have a number of exciting things planned for 2026. One of the bigger changes is that I plan to write less frequently in 2026, with a focus on more in-depth research. Quality over quantity. This likely means a 2-week cadence between articles rather than 1-week.

In addition, I want to start interacting more with you, my readers. To that end, I want to create an informal allocator network focused on emerging private credit managers.

The goal is to create a high-signal peer group for allocators who are actively underwriting private credit strategies and want a place to exchange:

• Manager references

• Market color

• Prominent spinouts

I still need to work out the format, but it is likely a 1x / quarter Zoom conversation. It will be intentionally small to start, maybe 10 total people.

This is for allocators who:

• Actively allocate to private credit / specialty finance / asset-based finance

• Spend real time underwriting managers, not just relying on a consultant

• Are increasingly looking at emerging or capacity-constrained platforms

• Think deeply about risks inherent in a strategy, not just historical net returns

• Are willing to be transparent with their views on managers / individuals

If you would like to be part of this network, or just want to learn more, send me a short note at:

covenant.lite1@gmail.com

A few lines about what you do and what you allocate to is sufficient.

I will respond personally.

Good luck in 2026.

Covenant Lite