Private Credit Under Scrutiny After First Brands and Tricolor Collapses Rattle Lenders

Investors and lenders are taking a harder look at the private credit market after two high-profile collapses in September 2025 exposed weaknesses in how some non-bank loans were underwritten and monitored. The bankruptcies of auto parts supplier First Brands Group and subprime auto lender Tricolor Holdings have prompted questions about how much risk has built up in a corner of finance that has grown rapidly over the past decade.

Two Filings Raise Alarm

Tricolor, a Texas-based lender that financed used car purchases for buyers with weaker credit, filed for Chapter 7 liquidation in mid-September, halting operations. Days later, First Brands, a manufacturer and distributor of automotive aftermarket parts with a large global footprint, filed for Chapter 11 bankruptcy protection. Both companies had borrowed heavily, and both had relied on financing arrangements outside traditional bank lending channels.

The filings drew attention because the companies had attracted funding from a range of private lenders and investment funds. Court documents and public reporting in the weeks that followed described complex financing structures and questions about the reliability of some collateral and reported assets. Lenders with exposure to the companies began assessing potential losses, and the episode quickly became a reference point in discussions about the health of the broader credit market.

What Private Credit Is and Why It Matters

Private credit refers to loans extended by non-bank entities, such as asset managers, business development companies and specialized funds, rather than by traditional banks or public bond markets. The sector expanded substantially after 2008, when tighter bank regulation pushed some lending activity outside the banking system. Many mid-sized companies now rely on private lenders for financing because these loans can be arranged more quickly and with fewer public disclosure requirements.

That structure has advantages for borrowers and for investors seeking higher yields. It also means less information is available to the public about loan quality, leverage and borrower performance. Critics argue that this opacity can allow problems to build unnoticed until a single failure reveals broader exposure.

Bank Executives Voice Concern

The collapses drew comment from senior figures in traditional finance. JPMorgan Chase chief executive Jamie Dimon publicly cautioned in October 2025 that the failures could signal further problems in lending, suggesting that where one problem surfaces, others may follow. His remarks added to a debate among market participants about whether the episode reflects isolated fraud and mismanagement or deeper structural strain in credit markets.

Market Response and Open Questions

Shares of several alternative asset managers and lenders with significant private credit businesses came under pressure in the weeks following the bankruptcies, reflecting investor unease. Analysts have pointed to several open questions, including how much exposure banks have to non-bank lenders that finance the same borrowers, and whether current valuation practices for privately held loans accurately reflect underlying risk.

Regulators and industry groups have also been examining the sector. Oversight of private funds has been less intensive than that of banks, and the pace at which the market has grown has prompted calls for greater transparency. Whether those discussions lead to new rules, or whether the market absorbs the losses and stabilizes, will depend on how the remaining bankruptcy proceedings unfold and whether additional borrowers show similar strain.

What Comes Next

For now, the central issue is confidence. Private credit has become a significant source of financing for companies across many industries, and its stability matters to employers, borrowers and investors alike. The First Brands and Tricolor cases will be closely watched in bankruptcy court over the coming months, with creditors seeking to recover assets and determine responsibility. Their outcomes may shape how lenders underwrite risk and how much scrutiny the sector faces in 2026.