U.S. loan funds are facing sharp outflows this month following the bankruptcy of First Brands Group, prompting renewed scrutiny of financing transparency and underwriting standards within the private credit market.
According to Lipper data, U.S. loan exchange-traded funds (ETFs) — which invest in syndicated loans often packaged into collateralized loan obligations (CLOs) — have recorded approximately $1.5 billion in outflows in October, marking their first monthly withdrawal in six months.
Jeffrey Rosenkranz, portfolio manager at Shelton Tactical Credit Fund, noted that investors are beginning to question what he described as “loose underwriting” in the loan market, driven by heavy inflows into both private credit and broadly syndicated loans. He added that early defaults tied to fraud could lead to broader financial distress among weaker or poorly managed firms as the credit cycle continues.
The bankruptcy of First Brands Group, an auto parts manufacturer known for its Fram oil filters, along with that of subprime auto lender Tricolor, has unsettled segments of the multitrillion-dollar credit market — including leveraged loans, CLOs, trade-finance funds, and asset-backed auto lending.
The financial impact has already reached several major institutions. JPMorgan reported a $170 million charge connected to Tricolor, describing it as “not our finest moment,” while Jefferies’ CEO stated that the firm had been defrauded by First Brands.
A spokesperson for First Brands’ CEO said on October 10 that the company was evaluating the best path forward to maximize value for its customers, suppliers, employees, and lenders.
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