Why Private Credit Firms Are Selling $15bn in Debt to Themselves

Jan 27, 2026 - 15:00

Quick Answer: Private credit firms sold a record $15 billion in debt to themselves in 2025—nearly quadrupling from $4 billion in 2024—through “continuation deals” where fund managers create new vehicles to buy loans from their old funds. This surge reflects the private equity exit drought forcing lenders to generate liquidity and extend loan durations as leveraged buyout repayments stall.

What Are Private Credit Continuation Deals?

Private credit continuation deals represent a financial engineering solution to a fundamental problem: loans that were supposed to be repaid years ago remain outstanding because the private equity-backed companies that borrowed the money haven’t been sold or taken public. Fund managers address this mismatch by creating new lending vehicles that purchase these aging loans from their existing funds, effectively rolling over the debt while generating liquidity for original investors who want to exit.

The mechanism works like this: a private credit fund that raised capital in 2018-2020 expected its loans to mature within 5-7 years as borrowers refinanced or as private equity sponsors sold portfolio companies. However, the IPO and M&A drought that began in 2022 meant those exits never materialized. Companies remain private, their loans remain outstanding, and the original fund approaches the end of its life without being able to return capital to investors.

Rather than forcing fire sales or accepting massive losses, fund managers establish “continuation vehicles”—essentially new funds that purchase the problem loans at negotiated values. Original fund investors receive distributions (often less than hoped), while the new vehicle’s investors gain exposure to the same credits at what managers argue are attractive entry points. The private credit manager collects fees from both the old fund for managing the exit and the new fund for ongoing loan management.

According to investment bank Jefferies, these continuation deals surged from nearly $4 billion in 2024 to $15 billion globally in 2025—a nearly fourfold increase that signals growing pressure throughout the private credit ecosystem. Many rolled-over loans originally financed leveraged buyouts by private equity managers but are taking far longer than expected to be repaid due to the deals drought.

Why Did This Market Explode in 2025?

Multiple converging factors explain why private credit continuation deals reached record volumes, with the trend showing no signs of abating as fundamental conditions persist.

The private equity exit drought creates the underlying problem. Private equity firms typically hold companies for 3-5 years before selling to another buyout firm, taking public, or recapitalizing. Since 2022, exits have collapsed to the lowest levels since the 2008 financial crisis as high interest rates, volatile public markets, and economic uncertainty made deals difficult. Companies that should have been sold in 2023-2024 remain in portfolios, meaning the loans funding those buyouts also remain outstanding far beyond expected durations.

Fund lifecycle pressures intensify as older private credit funds approach maturity. Funds raised in 2017-2019 typically have 10-year lives with possible extensions. As these funds near year 7-8, limited partners who invested expect distributions to begin. When loans remain outstanding with no clear repayment path, fund managers face difficult choices: default on return expectations, seek expensive extensions that disappoint investors, or engineer continuation deals that provide at least partial liquidity.

The massive fundraising boom in private credit during 2020-2022 created capital abundance that now seeks deployment. As newer funds raised tens of billions but struggle to find attractive new lending opportunities due to reduced buyout activity, purchasing seasoned loans from older funds becomes relatively attractive. These continuation vehicles can acquire loans at discounts to par value, offering potential upside if borrowers eventually repay or situations improve.

Limited partner liquidity needs drive demand for any exit mechanism. Pension funds, endowments, and insurance companies that invested in private credit funds years ago often need liquidity for their own obligations—pension payments, operational expenses, policy claims. When primary distributions don’t materialize because loans remain outstanding, secondary sales into continuation vehicles provide the only available exit, even if at disappointing prices.

Regulatory and accounting pressures add urgency. Funds holding loans significantly past maturity must explain to regulators and auditors why credits remain outstanding and whether valuations remain appropriate. Continuation deals allow managers to establish market-based pricing through arms-length transactions (even if technically to themselves) that support balance sheet valuations and demonstrate prudent portfolio management.

Why Is “Self-Dealing” Controversial?

The practice of fund managers selling assets to themselves raises obvious conflict-of-interest concerns that regulators, investors, and industry observers increasingly scrutinize. While not illegal when properly disclosed and approved, continuation deals create multiple tensions inherent in the structure.

Pricing conflicts emerge immediately: the manager selling loans from Fund A wants high prices to show strong performance and maximize distributions to limited partners, while the manager buying those same loans for Fund B wants low prices to offer attractive returns to new investors. The manager sits on both sides of the negotiation, theoretically representing conflicting interests simultaneously. While independent valuation advisers supposedly mitigate this conflict, the manager ultimately influences outcomes substantially.

Fee multiplication benefits managers regardless of economic outcomes for investors. The original fund collected management fees throughout the loan’s life, then collects transaction fees on the continuation deal, while the new continuation vehicle generates fresh management fees going forward. The manager profits from rolling over problem loans even if ultimate borrower performance disappoints—a misalignment that critics argue incentivizes extending troubled situations rather than recognizing losses.

Performance reporting complications arise when managers transfer assets between their own funds at negotiated prices. Did Fund A really achieve the 15% IRR reported, or was that inflated by selling loans to Fund B at generous valuations? Did Fund B get attractive entry pricing, or did it overpay to help its manager’s prior fund performance? These questions become difficult to answer definitively, reducing transparency for institutional investors evaluating managers.

Limited partner consent processes theoretically protect investors but often prove perfunctory. Fund documents typically require LP approval for continuation deals, but investors face pressure to approve: rejecting the deal might force worse alternatives like holding loans indefinitely or accepting deeper discounts from third parties. Managers know this dynamic and structure deals expecting approval, potentially reducing negotiating pressure to achieve truly fair terms.

The concentration of decision-making power with managers rather than borrowers or market forces creates systemic concerns. In traditional credit markets, borrower performance and market conditions determine loan outcomes. In continuation deals, manager decisions about when to roll loans, at what prices, and into which vehicles substantially influence results—introducing discretion that could obscure true credit quality across the private credit sector.

What Does This Signal About Private Credit?

The continuation deal boom reveals deeper issues within private credit markets that extend beyond immediate liquidity management, suggesting potential vulnerabilities as the sector has grown to over $1.5 trillion in assets.

Maturity mismatches between fund structures and underlying loan durations create inherent fragility. Private credit funds typically offer limited liquidity to investors—maybe quarterly redemptions with caps, or no redemptions until fund maturity. Meanwhile, the loans these funds make often contain extension options allowing borrowers to delay repayment if they pay slightly higher rates. This structure works fine when exits occur on schedule but breaks down when multiple borrowers simultaneously extend loans, as has happened recently.

Credit quality concerns lurk beneath continuation deal mechanics. If loans were performing excellently and borrowers could easily refinance with traditional banks, continuation deals would be unnecessary—borrowers would simply repay. The fact that so many loans are being rolled over rather than repaid suggests either borrower weakness, unfavorable market conditions for refinancing, or both. This raises questions about whether continuation vehicles are acquiring genuinely attractive credits or simply absorbing problems from older funds.

The growth of secondary markets in private credit reflects increasing illiquidity challenges as the sector scales. Advisers note the surge in both manager-to-manager continuation deals and limited partner-to-limited partner stake sales in private credit vehicles. This secondary market growth indicates investors increasingly need exit mechanisms that fund structures don’t naturally provide—a warning sign that the sector may have grown beyond its optimal size relative to natural liquidity sources.

Private equity’s extended holding periods create cascading effects throughout the financing ecosystem. When buyout firms can’t exit portfolio companies, those companies can’t repay loans, forcing lenders into continuation deals. Meanwhile, private equity funds face their own continuation fund pressure as they roll portfolio companies into new vehicles rather than realizing exits. This creates layers of continuation structures throughout private markets, each extracting fees while deferring ultimate resolution.

What Happens Next?

The trajectory of continuation deals depends largely on whether private equity exit markets revive or remain constrained, with implications extending across alternative investment sectors.

If M&A and IPO markets recover in 2026-2027, continuation deal volumes would naturally decline as borrowers refinance or repay loans following sponsor exits. This would represent the healthy resolution of a temporary problem—loans stayed outstanding longer than expected but ultimately performed, with continuation vehicles earning returns for patient capital. The current surge would be viewed as prudent liquidity management during challenging times.

However, if exit markets remain difficult, continuation deals could accelerate further as more funds approach maturity without natural liquidity. This scenario raises questions about how many times loans can be rolled between successive vehicles before someone must recognize losses. Each continuation pushes resolution further into the future, potentially obscuring deteriorating credit fundamentals behind financial engineering.

Regulatory scrutiny will likely intensify as continuation deal volumes grow and conflicts of interest become more apparent. The Securities and Exchange Commission and European supervisors increasingly focus on private fund practices, with continuation deals featuring prominently in examinations. Expect more prescriptive rules around independent valuations, LP consent processes, and fee disclosures—potentially making deals more expensive or difficult to execute.

Investor appetite for continuation vehicles may wane if early-generation deals disappoint. If loans rolled into 2025 continuation funds subsequently default or require further rollovers, limited partners will question whether these vehicles truly offered attractive entry points or simply delayed recognition of losses. Poor performance would reduce capital available for future continuation deals, forcing more genuine price discovery or defaults.

Key Takeaways

✓ Private credit continuation deals surged to $15 billion in 2025 from $4 billion in 2024 as fund managers create new vehicles to buy loans from old funds ✓ The boom reflects private equity exit drought preventing loan repayments, forcing lenders to extend credit through self-dealing structures
✓ Conflicts of interest emerge as managers sit on both sides of transactions, pricing loans between their own funds while collecting multiple fee streams ✓ The trend signals deeper private credit market vulnerabilities including maturity mismatches and potential credit quality issues masked by financial engineering ✓ Whether continuation deals represent prudent liquidity management or deferred loss recognition depends on whether private equity exit markets recover

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