Private Credit’s ‘Back Leverage’ Is Another Pain Point for Funds

Private credit funds, already on the defensive amid an unprecedented investor exodus and a number of defaulting borrowers, are now bracing for a battle with their go-to lenders: major banks.

JPMorgan Chase & Co.’s recent decision to curb some lending after cutting the value of certain loans due to AI disruption has the industry on high alert about threats to “back leverage.” This form of borrowing against a portfolio of assets, though hardly exclusive to private credit, has turbocharged the rise of direct lending.

In good times, back leverage can potentially help tip 8% or 9% gains ...