Private credit could spark a 2007-like 'financial accident,' El-Erian

Mohamed El-Erian warned that problems in the private credit market could trigger a chain reaction similar to the events that contributed to the 2008 collapse of Bear Stearns. He says liquidity concerns are already mounting and could spread into solvency worries for some private credit firms.

El-Erian says the first phase is unfolding. Jitters began last fall when subprime auto lender Tricolor Holdings and auto parts company First Brands collapsed, and funds such as Blue Owl, BlackRock, Cliffwater, and Morgan Stanley have limited investor withdrawals amid redemption requests.

He compared the climate to the summer of 2007, when BNP Paribas froze securitized debt funds and a liquidity crunch followed. That dynamic can prompt banks to pull back on lending. El-Erian pointed to reports that JPMorgan reduced the amount some private credit firms can borrow, and noted that when banks step back it becomes harder for companies to get loans even if they are unrelated to the problem.

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