Credit Is Just Credit

The argument from seniority

Marc Rowan, chief executive of Apollo Global Management, dismisses the premise behind most coverage of a private-credit selloff, that "private credit" names a distinct risk category. "Credit is just credit. There are good underwriters of credit and there are bad underwriters of credit."¹

The sharpest move in the argument is arithmetic rather than rhetorical. Asked about a potential software credit blowup, Rowan points at the capital structure: "software first lien is senior to high yield bonds and senior to equity. So if you're going to have a problem in software lending, you're going to have a problem in equity, you're going to have a problem in high yield, you're going to have a problem in bank lending and broadly syndicated and everywhere else." First lien debt is the last thing in a capital structure to be impaired, so a forecast that first-lien software loans go bad is necessarily a forecast that everything junior to them, equity included, has already been wiped out. Anyone who holds a bearish private-credit view while still holding software equity or high-yield paper is not really making a claim about private credit; they are making a claim about software and misattributing it to the wrapper it happens to sit in.

The reframe that follows: the venue is not the variable, the underwriting is. The same borrower, seniority, and collateral behave identically whether the paper sits in a business development company, a collateralized loan obligation, a bank's syndicated book, or a mutual fund.

What is actually being priced: concentration

Rowan's own diagnosis of a selloff is not that credit was mispriced generally, but that specific books were built badly. "If 30% of your portfolio is in one industry and that one industry is being impacted by technology, you have not been a good risk manager." He names a competitor, hedged, as having roughly 70% concentration in different versions of technology.

The mechanism by which an entire sector ended up exposed to one call is structural rather than a matter of taste: software was roughly 30% of the leveraged buyout market, and therefore roughly 30% of the levered lending market. A direct lender who simply took the market as it came, with no independent sector view, ended up with a third of the book in one industry by default. Passive exposure to deal flow was the concentration. Apollo's own stated position by contrast is nearly all first lien, almost all cash pay, large companies, and low leverage, against four levers that produced higher dividends elsewhere on the way up: smaller companies, more payment in kind, equity and preferred instruments rather than only first lien, and more leverage.

The limits of the argument

The argument rebuts the wrapper more convincingly than it rebuts the vintage. It remains entirely possible for "there are good and bad underwriters" to be true while most of an industry was bad at the same moment on the same thesis, which is close to a definition of a credit cycle. Seniority also protects the lender rather than the fund investor: first-lien debt recovers more in a default, but that does not make a levered vehicle holding first lien safe if the vehicle itself is over-leveraged.

The argument also depends on the collateral actually holding its value, which is exactly the assumption AI-driven repricing puts under the most pressure: software first lien is secured against an enterprise value that AI may be actively eroding, which is precisely the scenario in which seniority protects a lender least. Eric Glyman supplies the counterweight recorded in underwriting-is-not-the-edge: where Rowan treats underwriting quality as effectively the only lever, Glyman argues model quality is a comparatively modest one in his own domain, and the two are best read as describing different activities, scoring commodity credit against structuring bespoke credit, rather than a genuine disagreement.