BSP tells lenders to underwrite a wider rate path

Anant Kumar of Benefit Street Partners has told private credit lenders to underwrite a wider range of interest-rate outcomes and to treat volatility as a risk, according to Alternative Credit Investor. The warning lands a day before Federal Reserve chairman Kevin Warsh delivers his keynote at the Jackson Hole symposium on Friday (28 August), a speech investors hope will clarify the path for rates. For direct lenders, the message is a direct challenge to the way many books have been built: around a single expected path.

The instruction is easy to state and hard to practice: for much of the past year, direct lenders have priced floating-rate loans off a point forecast for the fed funds rate, adjusting spreads when data moved but keeping the shape of the forecast intact. Kumar is asking them to treat the range of plausible outcomes as the underwriting input itself: if the economy can land on either side of the modal path — something Fitch captured this year by splitting its forecast between an oil shock and an AI boom, as this publication has covered — then a loan priced to a point estimate is a loan priced to a guess. That is a different kind of discipline than bumping up a spreadsheet's rate assumption; it is the difference between asking what the fed funds rate will be and asking what it could be.

The caution lands into a quiet tape on defaults: S&P data, covered here earlier this week, put the US default rate at 3.9% by mid-2026. Low defaults make it easy to assume rate risk has already been handled, because nothing recent has tested it, and a quiet default tape has a way of encouraging wider leverage limits, not narrower ones. That is exactly the complacency Kumar is singling out. His message, without a specific rate forecast, is that underwriting should no longer assume the path is narrow.

Underwriting a wider band of rate outcomes means taking less leverage on floating-rate deals, or carrying more covenant headroom for the scenario in which rates rise above the base case. It means some marginal loans no longer clear the hurdle, and that forgone volume is the price of the discipline. The lenders who pay it are buying optionality against the range; the lenders who do not are effectively short the tails of the distribution. The Jackson Hole speech may move the point estimate, but it will not settle the distribution. The market should stop waiting for the chairman to do that.