A fresh warning from DoubleLine Capital CEO Jeffrey Gundlach is adding to the debate over whether private credit valuations are keeping pace with deteriorating market conditions.
In a post on X, Gundlach pointed to what he described as a growing disconnect between the leveraged loan market and credit ratings assigned to private credit collateralized loan obligations, or CLOs.
“Even as spreads on CCC bank loans are marching wider, Moody’s and Fitch are upgrading ratings on hundreds of outstanding private credit CLOs,” he wrote.
The comment comes as investors closely watch signs of stress across lower-rated corporate debt. CCC-rated loans represent some of the riskiest borrowers in the leveraged finance market, and widening spreads typically signal investors are demanding greater compensation to hold the debt as default risks rise.
Oaktree Says Bulk of Credit Market Remains Healthy, But There Are Issues
Gundlach’s remarks echo concerns raised in a recent Oaktree Capital market commentary, which argued that credit markets are entering a period of increasing dispersion.
The firm said lower-rated CCC loans have seen spreads widen by more than 300 basis points this year, while higher-rated loans have remained resilient, creating the type of bifurcation more commonly associated with recessionary environments.
Oaktree said the bulk of the credit market remains healthy but warned that a meaningful subset of borrowers is coming under pressure from elevated interest rates, persistent inflation and refinancing challenges.
The firm argued that success in today’s market will depend increasingly on managers’ ability to distinguish between stronger and weaker credits rather than relying on broad market performance.
Gundlach Questions Upgrades
Against that backdrop, Gundlach questioned why Moody’s and Fitch have upgraded hundreds of outstanding private credit CLOs, structured finance vehicles backed by portfolios of privately originated loans — despite mounting stress in the lowest-rated segment of the public loan market.
The apparent divergence highlights one of the central debates surrounding the roughly $2 trillion private credit industry: whether the sector’s relatively stable valuations accurately reflect underlying credit fundamentals or simply the fact that privately held loans are not marked to market as frequently as publicly traded assets.
Rating upgrades may reflect structural protections embedded in many private credit CLOs, including overcollateralization tests, subordination and portfolio diversification, rather than improvements in underlying borrower quality.
Even so, Gundlach’s comments are likely to intensify scrutiny over whether weakening conditions in leveraged loans could eventually spill into private credit portfolios, particularly as investors grapple with an increasingly bifurcated credit market.
