Concerns around the non-bank and private credit markets have been growing over recent months following a number of high-profile failures of borrowers where private credit lending has been involved.
These include the collapse of First Brands Group and Tricolor Holdings in September 2025, which have parallels to earlier failures such as Greensill Capital and Artis Finance (where we currently act as administrators). A continued availability of private capital and increased competition has contributed to ‘frothy lending’ - where lending standards may have loosened in pursuit of growth.
Non-bank lenders and private-credit platforms operate with limited regulatory oversight and are not subject to the same prudential supervision or capital requirements as traditional banks. As a result, potential key vulnerabilities in lending practices can go unchecked.
Key risks and common themes
In our article, “Trade Finance: Lessons from Recent Insolvencies,” we highlighted a number of common themes or risks that we see in many non-bank and private credit lenders. While we focused on lenders active in trade finance, these equally apply to other structured finance lenders, such as supply-chain finance, receivables financing, factoring or inventory finance.
- A focus on growth over governance – some non-bank and private credit lenders do not invest in developing strong and effective governance frameworks, prioritising rapid growth. Lenders may position themselves as fintech platforms and are incentivised to achieve substantial scale quickly to make the business model viable given the high-volume, low margin nature of some structured finance lenders.
- Significant gaps in due diligence – lenders can operate without the specialist expertise or systems necessary to conduct robust due diligence. The level of risk can be particularly high given the complexity of structured finance transactions, involving multiple counterparties jurisdictions and complex security packages. If any one of these third parties fail, there can be significant implications for the lender.
- High risk of fraud – weaker controls and the complicated nature of structured finance transactions can allow fraud to go undetected, with transactions being undermined by fake invoices, phantom counterparties or double-pledged assets.
The collapse of First Brands: Lenders exposed
Just three days after we published the above article in September 2025, First Brands, the US auto parts supplier, filed for Chapter 11 bankruptcy protection. The consequent impact on First Brands’ lenders provided a timely case study of the risks we highlighted.
First Brands relied heavily on off-balance-sheet structured financing, including factoring and supply-chain financing as well as equipment and inventory leases. The company amassed nearly USD 12 billion in combined on- and off-balance-sheet debt, far more than many of its lenders had understood.
In the aftermath of First Brands’ collapse, it has come to light that some lenders derived as much as 80% of their revenue from First Brands, reflecting poor controls and massive concentration risk. Other lenders with large exposures had experienced rapid growth, prioritising the speed and flexibility of their lending decisions, perhaps at the expense of prudent lending standards.
It is notable that some lenders said they had decided to cut back credit lines to First Brands prior to its failure, after the company was unable to produce requested documents or were denied access to sites to check a stock list against the actual inventory.
With accusations that up to USD 2.3 billion of assets are ‘unaccounted for’, there is also a current investigation into whether the invoices and inventory which underpins the firm’s off-balance sheet financing had been double pledged or ‘commingled’ between lenders.
As this situation highlights, the consequences of weak underwriting, lack of credit risk focus and insufficient controls can be devastating for a lender (as well as any underlying third-party investors in these facilities). For First Brands’ lenders the situation is playing out in full view of the public, adding reputational damage to financial loss.
Alarm bells: Regulator & industry concern
The fallout from First Brands has triggered unease from regulators and other industry leaders who are also concerned about lending standards in the private credit and non-bank lending space.
Andrew Bailey, the governor of the Bank of England (BoE) has drawn parallels with the 2008 financial crisis, warning of ‘worrying echoes’ in the private credit markets. The BoE is concerned about the vulnerabilities inherent in private credit, including ‘the opacity, the leverage, the weak underwriting standards’. This is especially concerning given the interconnections with mainstream banks who provide credit to non-banks in the form of loans and other funding. Bailey has urged stress-testing of non-bank financial institutions and greater scrutiny of connections between private credit providers and regulated banks.
In a recent earnings call, Jamie Dimon, CEO of JPMorgan offered a stark metaphor: ‘when you see one cockroach, there's probably more.’ Dimon was warning that the problems seen in the collapse of First Brands (and subprime auto lender Tricolor) could be the tip of a much wider fault line in the credit system, emphasising the need to re-examine underwriting, processes, and controls across non-bank lending.
Resilience is key
In our work we have seen alternative lenders that have scaled rapidly without developing the appropriate back-office, risk and credit-management capabilities necessary to support that growth. It only takes one external shock - as the introduction of tariffs did for First Brands - or a broader macroeconomic downturn to push one of their major borrowers into distress.
Alternative lenders need to ensure they consider their underwriting and due diligence procedures, regularly challenge assumptions and conduct detailed scenario analysis to reflect different stressed conditions across their loan book. This needs to be coupled with an appropriate and transparent review of the performance of underlying borrowers, as this is the basis of any return to external investors/ lenders. This should not only be undertaken at the inception of a facility, but on a regular basis.
Risk management matters. Without disciplined underwriting, robust systems, and effective governance, even the most profitable alternative lenders can quickly experience stress or distress.
For more information or advice, contact Chris Laverty, Head of Financial Services Restructuring and Insolvency, or Russell Simpson, Partner Financial Services Restructuring and Insolvency.
