Capital Withdrawal Risks in Leveraged Private Credit Funds: Lessons from the Point Bonita Crisis

The recent partial redemption requests by BlackRock and other institutional investors from Jefferies' Point Bonita Capital fund have exposed critical vulnerabilities in leveraged private credit markets. As the auto-parts supplier First Brands Group filed for Chapter 11 bankruptcy in September 2025, its abrupt cessation of payments to Point Bonita-$715 million in receivables from major retailers like Walmart and Autozone-triggered a liquidity crisis for the fund, as noted in a Jefferies update. This case underscores how leverage structures, opaque valuations, and redemption pressures can amplify systemic risks in private credit, even as the asset class grows to $5 trillion in assets under management, per the Morgan Stanley outlook.

Leverage and Liquidity: A Double-Edged Sword

Leveraged private credit funds often employ complex financing tools such as special-purpose vehicles (SPVs), note-on-note financings, and total return swaps to optimize capital deployment, according to a Mayer Brown primer. These structures allow funds to amplify returns by borrowing against loan portfolios or individual assets. However, they also create interdependencies that can unravel during market stress. In the Point Bonita case, the fund's exposure to First Brands' trade debt-backed by SPVs and collateralized loan obligations (CLOs)-became a liability when payment flows halted, as an Accredited Insight analysis described.

The use of SPVs, while designed to isolate risks, can paradoxically exacerbate liquidity challenges. For instance, if an SPV's borrowing base is recalculated due to downgraded assets (as occurred with First Brands' receivables), margin calls or forced asset sales may follow, a GARP analysis explains. This dynamic was evident in Point Bonita's struggle to access liquidity as Jefferies scrambled to assess the fallout from First Brands' bankruptcy, a Bloomberg Law report said.

Investor Protection Mechanisms Under Stress

Private credit funds typically rely on redemption gates, notice periods, and subscription credit facilities to manage liquidity. Yet these tools proved insufficient in the Point Bonita scenario. BlackRock's partial redemption request-part of a broader trend of investor caution-highlighted the fragility of these safeguards. A Bloomberg Law report said BlackRock and Texas Treasury Safekeeping Trust Co. sought to withdraw capital from the fund, which holds $3 billion in trade-finance assets. Such actions, while legally permissible, risk triggering a cascade of redemptions that further strain liquidity.

The opacity of private credit valuations compounds these risks. Unlike public markets, where prices are transparent, private credit relies on subjective appraisals that may mask deteriorating credit quality until defaults occur, a Hausfeld analysis warns. In First Brands' case, the lack of real-time visibility into receivables-exacerbated by allegations of double-factoring-delayed investor responses until payments ceased, a MarketChameleon article reported.

Systemic Implications and Regulatory Concerns

The Point Bonita crisis has reignited debates about the systemic risks posed by leveraged private credit. The Federal Reserve and Bank of England have previously warned that the sector's rapid growth could create liquidity mismatches, particularly if banks become key liquidity providers for private funds, in a Boston Fed paper. Jefferies' direct equity stake in Point Bonita ($113 million) and its exposure through Apex Credit Partners ($48 million in First Brands' term loans) illustrate how interconnectedness can amplify contagion risks, as a MarketMinute report noted.

Moreover, the collapse of First Brands-projected to leave billions in paper losses-has exposed the limitations of covenant-heavy loan structures. While private credit is often praised for its proactive covenants, these mechanisms failed to prevent the crisis in this instance. First Brands' bankruptcy filing cited potential mismanagement of receivables, suggesting that even robust covenants may not safeguard against operational or fraud-related risks, as Jefferies noted in its update.

The Path Forward: Balancing Innovation and Caution

To mitigate capital withdrawal risks, private credit managers must enhance transparency and liquidity buffers. For example, Mayer Brown's analysis recommends diversifying financing structures to avoid overreliance on SPVs or CLOs. Additionally, investors should demand clearer disclosure of leverage ratios and redemption terms, particularly in funds with concentrated exposures like Point Bonita.

Regulators, meanwhile, face a delicate balancing act. While private credit's resilience during past downturns (e.g., 2008, 2020) has bolstered its appeal, according to a Heron Finance blog, the Point Bonita case demonstrates the need for stricter oversight of leverage and redemption practices. The recent overturning of SEC rules by the Fifth Circuit Court of Appeals has further complicated this landscape, leaving gaps in investor protections, as Hausfeld has argued.

Conclusion

The Point Bonita crisis serves as a cautionary tale for the private credit industry. While leveraged structures can enhance returns, they also create vulnerabilities that crystallize during market stress. As BlackRock and other investors recalibrate their exposure, the sector must prioritize liquidity management and investor transparency to avoid repeating past mistakes. For now, the $5 trillion private credit market remains a double-edged sword-offering attractive yields but demanding rigorous risk governance in an era of heightened volatility.