JPMorgan marks down loans, tightens lending to private credit funds: reports
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The news: JPMorgan Chase has marked down the value of certain loans held by private credit funds and restricted some lending against them, according to reports. The bank informed private credit lenders it had reduced the value of some loans in their portfolios that serve as collateral, limiting how much they can borrow against them going forward, The Financial Times first reported.
Sources also told Bloomberg and Reuters the loans that were marked down were to software companies, and that JPMorgan reviewed its financing portfolio after market turmoil in the sector.
One source told Reuters the bank reviewed its financing portfolio “name by name and then sector by sector” and applied valuation marks to some loans, including those with underlying software exposure. The marks refer to adjustments to the loans’ valuations based on the collateral of the fund, the source said, adding the adjustments were not significant.
The decisions impact a small cohort of borrowers, have not triggered any material margin calls so far and were done to pre-emptively reduce the amount of credit available to the funds, the FT reported citing the sources.
The context: Wall Street banks such as JPMorgan lend to private credit funds using their loans as collateral, meaning a lower valuation reduces how much banks can lend. The move is the latest sign of stress in the roughly USD1.8 trillion private credit industry.
It comes as investors raise concerns about deteriorating credit quality in private credit markets. Scrutiny has also intensified on loans to software companies, a major borrower base for private credit lenders, amid concern artificial intelligence could disrupt their business models.
Investor withdrawals have also increased from some private credit funds. Last October, JPMorgan chief executive Jamie Dimon warned that more “cockroaches” would surface in the once-booming but opaque private lending market.
JPMorgan has not commented on the reports.
The sources: The Financial Times, Reuters, Bloomberg
