Welcome to WSJ Pro Bankruptcy's Daily Briefing. It's Wednesday, April 15. In today's briefing, banks have been detailing their exposure to private-credit funds in their earnings reports in a bid to reassure investors, arguing this lending is highly structured and protected by self-selected collateral. But UBS analysts expect default rates in loans made by private-credit funds to double to 9–10% this year, with pressure mounting elsewhere as shareholders of KKR’s asset-based finance-focused interval fund race for the exit.

Banks sought to reassure investors on Tuesday by giving more detail on their lending to private credit funds in their earnings reports, and described the steps they have taken to limit their risk exposure.

Some investors have started trying to exit private credit funds on concerns over their liquidity, transparency and exposure to AI-disrupted sectors like software. A further concern has been that banks who lend to those funds could wind up exposed, too. Banks, though, have argued that this lending is highly structured and protected by collateral that the banks pick themselves. This makes it far less risky than the underlying loans themselves, they say.

Analysts at UBS lowered their forecast for defaults in private credit driven by disruption from artificial intelligence, but said it’s still going to be a very bad year.

Default rates in loans made by private-credit funds will likely double to 9%-10% this year, they said. That compares to a worst-case estimate of 14%-15% the analysts made in February.

“Importantly, risks remain skewed to the upside as late‑cycle credit conditions intersect with rapid AI adoption,” the analysts said in a report Monday.

Shareholders of KKR & Co’s asset-based finance-focused interval fund are racing for the exits but below the extreme levels seen by some of the firm’s largest industry peers.

KKR Asset Based Finance Fund, or K-ABF, received repurchase requests amounting to 7.22% of the fund’s aggregate $532.5 million of net asset value, or $38.4 million, according to a Tuesday shareholder letter.

The asset manager said in the letter that it will limit quarterly redemptions to 5% of NAV, or around $26.6 million, adding that the decision “reflects disciplined liquidity management and a desire to preserve the integrity of portfolio construction.”

The outflows from non-traded private credit funds represents a legitimate headwind, but a modest one, Oppenheimer analysts Chris Kotowski and John Coffey write. If these funds see a steady 5% outflow each quarter, that would equate to only a 1.6% decline in the total revenues of alternative asset managers. Blue Owl, which is the most exposed to these funds, could see a 3.9% revenue decline under these conditions, they estimate. Outflows "are not a make-or-break issue for the Alts," the analysts write. "All of them raise institutional funds which are still growing and account for the preponderance of the fee base. It does of course cast doubt on the near-term growth opportunity but we believe the long-term opportunity is still open ended."

—Elias Schisgall

Citi group is predicting a higher default rate for high-yield bonds, or debt issued by companies with so-called junk credit ratings.

What a difference a few months make. Back in October, Citi recommended that it was a good time to “double down” on high-yield bonds, based on a healthy demand for risky assets like stocks alongside a rally in the U.S. debt market.

By November, actual defaults had jumped to 3.3%. Nonetheless, in December Citi predicted a 2.7% default on junk by the end of 2026. By the time February rolled around, actual defaults had reached 3.6%.

Hui Ka Yan, the disgraced Chinese real-estate tycoon who once ranked among the world’s richest men, has pleaded guilty to charges of financial misconduct and bribery, bringing the collapse of a celebrated property empire nearer to its conclusion.

Hui stood trial in the southern metropolis of Shenzhen this week along with China Evergrande, the property developer he founded, and its main operating vehicle in mainland China, Hengda Real Estate, according to a brief report from the state-run Xinhua News Agency on Tuesday.

At the two-day trial at the Shenzhen Intermediate People’s Court, which ended Tuesday, prosecutors charged Hui and Evergrande with offenses that included illegally accepting public deposits and granting loans, fundraising and securities issuance fraud, illegal information disclosures and corporate bribery.

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