Private credit risk: a borrower’s playbook for 2026

From shadow capital to board priority

Australia’s corporate regulator has just pushed private credit out of the shadows and onto every board agenda. For borrowers, the message is not moral panic but management discipline. When lenders range from global funds to local non‑banks, capital selection is now a governance question, not merely a treasury tactic. Treat each facility as a bundle of counterparty, structural and conduct risks. The leadership task is to translate that into practical oversight, measurable thresholds and faster information flow.

Private credit grew because it is fast, flexible and, in many cases, relationship‑driven. Those strengths remain. But the compromises are clearer: documentation varies widely, disclosure is inconsistent and post‑deal changes can move quickly. Compared with syndicated bank loans, monitoring often rests more heavily on the borrower. That does not make private credit unsafe. It means success depends on active management, clear expectations and contingency planning that starts at term sheet stage, not after the first compliance certificate.

Current reporting highlights “poor practices” in parts of the market. Details will evolve, but the leadership implication is stable: information asymmetry is the core hazard. Borrowers can face incentive misalignment in complex fund structures, valuation opacity for illiquid exposures, and aggressive terms that concentrate refinancing risk. None of this is universal, and many lenders run exemplary processes. The disciplined borrower’s edge is to assume gaps exist, then close them with questions, measurement and pre‑agreed escalation paths.

Work Report note · News analysis · Current-news analysis

Turn ASIC’s spotlight into a private credit risk checklist

Start with the lender, not the term sheet. Map where the capital comes from, how decisions are made and what constraints bite under stress. Ask for the investment committee mandate, conflicts policy and leverage at the fund level. Compare redemption terms and liquidity promises with your loan tenor. A mismatch here is classic private credit risk. Clarify whether co‑lenders or managed accounts can diverge on waivers or amendments, and document who truly holds discretion.

Interrogate transparency. What information arrives automatically, in what format and how often. Seek audited track records, third‑party valuations where relevant, and a named contact who can interpret covenants rather than simply collect reports. Ask how portfolio concentration, sector caps and ESG exclusions are monitored at the lender. If a facility is bilateral, ensure there is still a method for benchmarking terms. Build a short, consistent pack that converts lender reporting into management intelligence, not spreadsheets alone.

Price the whole structure, not just the margin. Model base rate floors, upfront and ticking fees, amendment fees, flex language, MFN clauses, OID and any PIK toggles. Identify prepayment penalties across time and the cost of adding incremental tranches. Run a scenario where rates fall, spreads widen and liquidity thins simultaneously. Finally, ask what happens if the facility is syndicated, participated or sold to a secondary buyer, and which consent rights travel with you.

Work Report note · News analysis · Current-news analysis

Treat private credit as a governed system: diligence the lender, price the structure, hard‑wire triggers and convert board reporting into a rolling capital‑health view.

Rewire treasury policy and covenant design

Refresh your treasury policy so capital sourcing has teeth. Set counterparty selection criteria, minimum documentation standards and diversification limits by lender type, maturity bucket and covenant style. Add quantitative early‑warning triggers tied to liquidity headroom and refinancing runway, with mandatory escalation steps. Align these thresholds with the enterprise risk appetite statement so CFO, treasurer and CRO are speaking the same language. Private credit risk should be positioned alongside FX, interest rate and counterparty risk.

Design covenants as instruments, not ornaments. Where possible, avoid purely incurrence‑based frameworks that allow trouble to build unseen. Blend maintenance metrics aligned to free cash flow, leverage paths and liquidity buffers, with data that can be produced quickly without controversy. Structure margin ratchets to reward early engagement, not late‑stage brinkmanship. If using springing covenants, define activation mechanics clearly and ensure they tie to objective balance‑sheet signals rather than subjective forecasts or board intentions alone.

Strengthen documentation hygiene. Build a map of all side letters, fee letters and intercreditor agreements so nothing drifts out of sync. Tighten consent thresholds on assignments and transfers, and track who holds voting power across syndicate components. Use most‑favoured‑nation protections wisely and set information rights that allow you to see problems early. Create a simple red‑amber‑green scorecard for term strength and update it quarterly. Escalate any red items to the audit and risk committee.

Work Report note · News analysis · Current-news analysis

Board oversight and scenarios that actually bite

Reframe board reporting from debt levels to capital resilience. Provide a quarterly “capital health” update covering maturity profile, covenants at‑risk, available liquidity and lender quality. Link this to the board’s articulated risk appetite and strategic plans so trade‑offs are explicit. If you are listed, ensure disclosures about financing are aligned across investor presentations and market releases. If you are private, still maintain the discipline of an audit trail that proves reasonable governance under scrutiny.

Run scenarios that combine operational and funding stress. Test a 10 to 20 percent revenue dip, a rapid policy‑rate swing, a currency shock and a lender unable or unwilling to roll exposure. Pre‑agree mitigations: an accordion option sized to the plan, a standby facility with known documentation, pre‑cleared asset sales, covenant cure capacity and a plan for vendor or customer financing if liquidity tightens. Assign owners and deadlines so scenarios translate into executable options.

Execute a 90‑day uplift. Week one maps every facility, covenant and consent right. Weeks two to five run the lender diligence, build the reporting pack and calibrate treasury triggers. Weeks six to nine negotiate small‑but‑meaningful fixes, from transfer restrictions to information rights. The final month rehearses scenarios and locks in contingency lines. Throughout, keep banks warm and avoid over‑concentration with any single funding channel. The point is a calmer balance sheet before volatility returns.

Work Report note · News analysis · Current-news analysis