Wall Street Warns About a Possible Private Credit Collapse. Should Investors Worry About These Ultra-High-Yield Stocks?

Industry Overview - The private credit market has grown significantly, reaching approximately $2 trillion in 2020 and projected to grow by roughly 50% by early 2025, potentially reaching close to $5 trillion by 2029 [1] Concerns and Warnings - Experts, including Jeffery Gundlach and Jamie Dimon, have raised concerns about the quality of loans in the private credit market, with warnings about potential credit issues in the event of an economic downturn [1] - Wall Street is sounding alarms regarding a possible collapse in the private credit market, particularly affecting ultra-high-yield business development company (BDC) stocks [1] Company-Specific Insights - Prospect Capital (NASDAQ: PSEC) is highlighted as a BDC showing potential cracks, despite its long history and attractive forward dividend yield of 19.7%. However, its net asset value (NAV) has significantly eroded, and it relies heavily on issuing perpetual preferred stock, increasing fixed-payment obligations [3][4] - FS KKR Capital (NYSE: FSK) also presents problematic signs, with a forward dividend yield of 20.3% and non-accruals at 5% of its total investment portfolio as of Q3 2025. Fitch has lowered its outlook on FS KKR Capital to negative due to persistently elevated non-accruals [5] - Ares Capital (NASDAQ: ARCC) is presented as a more resilient direct lender that may weather potential market storms better than its peers [5]