Newsroom

WASHINGTON, D.C. — U.S. Senator John Fetterman (D-PA) penned a July letter to the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) urging them to begin enforcing an existing rule requiring greater disclosures in private credit markets.

“The private credit industry is far too opaque to regulators and the rest of the financial system. Because these firms have never been through a downturn at their current size, markets do not know how to properly value private credit loans and assets in a crisis. As with all financial crises, the panic of not knowing where the floor is makes it far worse. It is important that regulators have the knowledge and the tools to prevent crises before they happen, but that is not possible if they do not know enough about the market,” wrote Senator Fetterman.

Big banks, insurance companies, and pension funds are all exposed to private credit — a market of unregulated lending to struggling companies — which is showing signs of much higher risk than investors anticipated. Form PF is a disclosure form that unregulated entities like private credit funds must submit to the SEC and CFTC. The agencies’ proposed updates to Form PF would greatly improve their understanding of the risks in private credit, but have yet to start enforcing them.

“The updates to Form PF, as originally proposed, would ensure regulators and investors better understand the leverage, interconnectedness, loan quality, and liquidity of this market. It is concerning, therefore, that your agencies have chosen to delay the enforcement of these requirements three times since taking office,” continued the senator. “Now is not the time for regulators to be in the dark.”

Read the full text of the letter below and here.

–

Dear Chairman Atkins and Chairman Selig:

I write to urge you to begin enforcing compliance with the updates to Form PF as initially proposed. It is critically important that regulators have a better understanding of the risks in private markets, in order to protect investors and prevent disruptions to the broader financial system.

I am deeply concerned about the mounting risks in private credit markets. Now $3 trillion in size, the private credit industry is making increasingly bad loans to subprime companies. The failures of First Brands and Tricolor, increasing reliance on payments-in-kind among borrowers, and concerns around AI disruption to the software industry all demonstrate poor underwriting over the past several years. In reaction, investors have been rushing to get their money out of these souring investments, but have often been trapped.

Even more concerning is the exposure America’s traditional financial system has to this market. The big banks have lent almost $300 billion to the private credit industry, much of which lacks covenants that protect the banks in times of crisis. Moreover, the insurance industry is not only exposed to $1 trillion in risk but also is among the largest purchasers of the low-tranche collateralized loan obligations (CLOs) that would get wiped out in a downturn.

The private credit industry is far too opaque to regulators and the rest of the financial system. Because these firms have never been through a downturn at their current size, markets do not know how to properly value private credit loans and assets in a crisis. As with all financial crises, the panic of not knowing where the floor is makes it far worse. It is important that regulators have the knowledge and the tools to prevent crises before they happen, but that is not possible if they do not know enough about the market.

The updates to Form PF, as originally proposed, would ensure regulators and investors better understand the leverage, interconnectedness, loan quality, and liquidity of this market. It is concerning, therefore, that your agencies have chosen to delay the enforcement of these requirements three times since taking office. Your recent April 24th announcement seeking comments on an extreme watering down of the changes is even more concerning. Beyond these updates, it is critical that you better enforce annual reporting requirements and punish market actors who fail to follow their obligations.

I urge you to move forward with robust, detailed transparency through Form PF by October 1st. Now is not the time for regulators to be in the dark.

Sincerely,