Nearly $500 million in assets sold at a 6% discount! AI scares U.S. private credit funds

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Tensions in the private credit market are moving from “worry” to “pricing.” Amid rising investor doubts about AI-related risks, liquidity, and lending standards, U.S. fund New Mountain chose to sell nearly $500 million in assets at a discount, reflecting increasing industry pressure.

According to Bloomberg, New Mountain said on Tuesday that one of its private credit funds sold $477 million in assets at “only $0.94 per $1 asset,” aiming to improve portfolio diversification and reduce PIK income (payment-in-kind interest) to enhance financial flexibility.

This disposal comes amid sharply heightened discussions on private credit risks. A week ago, Blue Owl closed redemption windows for one of its funds and began to sell some direct lending investments to return money to investors, causing its market value to shrink by $2.4 billion and dragging down the share prices of private credit-related companies like Ares Management and Blackstone.

Market alarms are sounding intensively. Boaz Weinstein, founder of Saba Capital, said, private credit is in the early stages of collapse, with industry concerns focused on excessive spending on AI, software investment exposure threatened by AI, and lending standards.

A UBS report states that private credit default rates could surge as high as 15%, and the risks of mismatches between funding and assets are being reassessed.

New Mountain’s Discounted Deal: Reducing PIK, Adjusting Portfolio Structure

New Mountain defined this sale as an active portfolio rebalancing. The company said the deal’s goals include increasing portfolio diversification, reducing PIK income, and enhancing financial flexibility. Executives told investors late last year that they planned to sell up to about $500 million in assets, and this scale is close to that target.

From an industry perspective, the deal price of “$0.94 per $1” is itself a signal: in a stage where valuation and liquidity are more sensitive, discounted deals are easier for the market to interpret as a “deleveraging adjustment” amidst declining risk appetite.

New Mountain also disclosed that commercial services account for 22.4% and software for 22.2% of its overall portfolio, with software at the center of market discussions about AI’s impact on software business models.

Asset-Side Returns Under Pressure: NAV Drops, Dividends Cut

New Mountain’s own financial metrics also show the pressure being transmitted. The company said its BDC, in the quarter ending December 31, saw its net asset value per share drop from $12.06 in the previous quarter to $11.52.

At the same time, the company cut its dividend from $0.32 per share to $0.25, due to income compression from rate cuts and narrowing credit spreads.

The company said it has repurchased $30 million in stock since the end of Q3 2025 and expects to continue repurchases this year. CEO John Kline said this move “demonstrates confidence in NMFC’s long-term value.”

Blue Owl’s Liquidity Turmoil Spills Over: Valuation and Structure Repriced

A bigger shock comes from industry-wide liquidity pressures. According to Bloomberg, after Blue Owl restricted redemptions, it began selling some direct lending investments to return money to investors, causing its market value to drop by $2.4 billion and driving a simultaneous decline in share prices of several companies related to private credit.

This chain reaction strengthened investors’ re-examination of the mechanisms of semi-liquid products: when redemption demand rises but underlying asset trading is not smooth, fund structures, asset valuations, and exit paths can all come under pressure, with risk premiums rising accordingly.

AI Concerns and Default Expectations Combined: Discount Sales and 'Bottom Fishing' Coexist

Debates over AI are now part of private credit risk narratives. Boaz Weinstein attributed industry cracks to excessive spending on AI, software exposure threatened by AI, and lending standard issues, and pointed out market mismatches: some credit asset prices are at historic highs, but relevant stocks and fund structures are seeing “significant discounts.”

His Saba Capital and Cox Capital have announced cash tender offers to acquire interests in three Blue Owl-managed funds at 20% to 35% discount to disclosed NAVs, providing liquidity for retail investors wishing to exit but facing tougher redemptions.

The offers cover Blue Owl Capital Corporation II and are planned to extend to Blue Owl Technology Income and Blue Owl Credit Income. Bloomberg reports that Blue Owl’s stock price has dropped about 50% over the past year, even as company income continues to rise.

On the risk side, UBS Group AG’s assessment that “default rates could reach as high as 15%” has heightened expectations for future losses; on the funding side, Weinstein and others are trying to view discounts as opportunity windows. For investors, key variables are shifting from “yield levels” to “structural liquidity, valuation reliability, and speed of repricing AI-related exposures.”

Risk Disclosure and DisclaimerThe market is risky, and investment needs caution. This article does not constitute personal investment advice, nor does it take into account special investment goals, financial situations, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions in this article fit their specific circumstances. Invest accordingly, and take responsibility for your own actions. ```