The 2026 Wharton Restructuring and Distressed Investing Conference

Welcome to the 178th Pari Passu newsletter.

We are excited to share our recap of the 22nd Annual Wharton Restructuring and Distressed Investing Conference (WRDIC), held on Friday, February 20, 2026, at the Plaza Hotel in New York City. This year's theme, "Restructuring in the Age of Private Credit", could not have been more timely. With the recent negative coverage covering the BDC software sell-off and issues surrounding retail vehicles, private credit as an asset class has moved from a niche market to a $2.0tn behemoth, which is now a core tenet of the leveraged finance world. 

One of our analysts attended the conference in person, and we are excited to share key insights and analysis from across the day's sessions. For those who enjoyed our coverage of last year’s distressed conference, this year’s edition was even more timely. The conference featured two keynote interviews with HPS leadership and eight substantive panels, all of which explored private credit's influence on restructuring from different angles, from crypto workouts and bank-lender relationships to intercreditor dynamics, origination strategy, and the anatomy of private credit restructurings themselves. We covered the conference in chronological order to mimic the live experience, so feel free to skip around to topics that interest you most.

Special thanks to the Wharton Restructuring and Distressed Investing Club for organizing another outstanding event.

The day opened with a keynote interview featuring Michael Patterson, one of the architects of the modern private credit industry. Interviewed by Kirkland & Ellis restructuring partner Christopher Greco, Patterson offered a remarkably candid and personal account of his path from growing up near the Florida/Alabama border to the helm of one of the world's largest alternative credit platforms and, in doing so, revealed the formative experiences that shaped his approach to leadership, underwriting, and institution-building.

A major focus of the early conversation was his time spent in the U.S. Navy. Patterson grew up in the Florida panhandle and, by his own admission, did not know investment banking existed until he arrived at college. He attended Harvard as an undergraduate but did his Navy ROTC through MIT, since Harvard did not permit the program on campus. After graduating, Patterson spent five years as a Navy officer serving on destroyers, completing three deployments to the Persian Gulf with stations in San Diego and Hawaii before transitioning to an intelligence role in a missile defense program. The Navy experience, Patterson explained, was foundational to everything that followed. At just 21 or 22 years old, he found himself commanding 43 enlisted personnel on a ship where the average sailor was 19, but ages ranged up to 50. Patterson explained that leaving the Navy was not an easy decision. At the time, he felt that being in the Navy during peacetime was not pushing him to operate at full potential. Instead, he was attracted to the world of investing. In his words, he was attracted to investing because the market would let him know whether he was “right or wrong”, whereas his decisions in the navy did not carry the same accountability feedback loop. 

After spending five years in the Navy, Patterson decided to pursue an MBA at Stanford’s Graduate School of Business (GSB). Patterson described GSB as essentially a "language course”, where he loaded up on accounting and economics classes to build the business fundamentals he lacked from a math and military background. After Stanford, he joined Goldman’s principal investing arm, where he worked on the mezzanine business. The highlight of the entire keynote was perhaps the following incident, which occurred during his time at Goldman. Patterson recounted that while he was sitting in his cubicle, his secretary let him know that someone is on the line. She let him know that it is Steve Schwarzman: he immediately dismisses it, thinking it is his “idiot” college roommate pulling a prank. Five minutes later, his secretary let him know Steve Schwarzman is on the line, again. He picks up the phone this time, and it is actually Steve Schwarzman. He immediately takes a cab uptown and meets Steve Schwarzman. Despite continuing conversation for a long time with Blackstone, he decides to join Silver Point because he wanted to play a critical role in building a platform instead of just being an “employee”. All this occurred in the early 2000s, when Blackstone was still building out its credit capabilities, and Schwarzman was personally recruiting talent. Silverpoint, founded in 2002, was at an earlier stage in its life cycle. This made Patterson one of the first members to join the Silverpoint platform, and it was this difference that made him join Silverpoint over Blackstone at the time. 

Stepping back for a second, he offered two great lessons stemming from the Schwarzman story. First, the fact that Steve Schwarzman was personally recruiting associates goes to show the level of detail and involvement he maintained while building Blackstone. Patterson claimed that it is this level of involvement and passion that lies behind Blackstone’s success. The second was about his own decision-making: joining Silver Point was objectively the riskier bet, but Patterson explained that he would have been perfectly content failing as a builder and platform creator, whereas succeeding as an employee at a firm someone else had built would never have fully satisfied him. At Silver Point, Patterson moved to the London office, an experience he described as transformative. It was this experience that greatly shaped his investing philosophy and led to the founding of HPS.

If there were a short phrase to summarize the keynote, it would be the importance of first-principles thinking. Patterson gave a short but telling example that magnified the importance of this value. European first and second lien structures, he explained, were fundamentally different from their U.S. counterparts, and the absence of well-established precedent meant that every deal required genuine first-principles underwriting. You could not rely on what the last deal looked like; you had to underwrite each credit from scratch across unfamiliar legal jurisdictions. After spending a few years building out the London office, Patterson decided to pivot and start his own platform. The investing discipline learned during his time at Silverpoint became a cornerstone of how Patterson would later build HPS. Patterson co-founded HPS in 2007 alongside Scott Kapnick, a former Goldman Sachs partner who had served as co-head of the firm's investment banking division. HPS was established under the J.P. Morgan Asset Management umbrella, with J.P. Morgan providing the institutional backing and balance sheet to launch the platform. The original vision was ambitious: a three-pillar firm spanning credit, private equity, and real estate with global scale ambitions from the outset. The thesis behind the business, however, traced back even further, to around 2002, when Patterson and others observed that banks had pulled back from originating senior secured debt in the wake of the telecom crisis. Goldman was lending at 600 basis points over benchmark spreads, while commercial banks were at 250. Patterson and Kapnick expected this dislocation to last only two or three years before banks returned to recapture the market, but this window soon turned into a structural change as tighter regulation on banks followed.

After establishing the platform, Patterson and Kapnick decided to operate within J.P. Morgan's asset management structure until 2016, when the HPS team executed a management buyout, purchasing J.P. Morgan's profit participation with after-tax personal dollars and gaining full equity ownership and control. The partnership with JPM was fruitful for both, but the relationship came with significant constraints. Mainly, operating within a large bank's structure presented certain challenges: investment decisions required navigating institutional processes, the firm could not pursue certain opportunities that conflicted with J.P. Morgan's broader banking relationships, and the partners had limited ability to build equity in a business they were effectively running. By 2024-2025, the competitive landscape had shifted decisively. Patterson noted that HPS's main competitors (like Blackstone, Ares, KKR, Apollo, and Carlyle) were all public companies with stock currency for acquisitions and platform investments. Thus, in January 2025, BlackRock announced its acquisition of HPS Investment Partners in an all-stock transaction valued at approximately $12bn, giving HPS's partners significant equity in the world's largest asset manager. The decision to join the BlackRock platform is best explained by the importance he places on scale. For example, BlackRock spends more than $800mm annually on technology and R&D; HPS's total technology budget was $20mm. The gap in AI capabilities, data infrastructure, and scale advantages was widening in ways that a standalone firm could not easily close. In other words, partnering with BlackRock would enable better client service through technology, broader distribution, and the institutional infrastructure to compete at the highest level in the private credit landscape. 

Additionally, Patterson did not just view scale as purely a differentiator due to better access, but also as a means to hedge risk. In his view, scale in today’s market is not just a hedge against risk but a key differentiator for the GP. A telling example that he gave was regarding the use of AI in modern-day investing workflows. While discussing the growth of AI in the investment process with BlackRock’s senior management, he discovered that BlackRock owns the supercomputer on Stanford’s campus, showing that scale not only opens new doors but also allows a player to be at the forefront of every development. 

After establishing the origins of HPS, the conversation turned to Patterson’s views on the current market environment. Before answering the first question, Patterson immediately challenged a key premise regarding the growth of the private credit market. He pushed back against the narrative that private credit's growth has been supply-driven. He framed it as fundamentally demand-driven: he noted that private credit has compounded at approximately 16% annually over the past decade, which he argued is proportionate to the growth of private equity. He then addressed the default environment head-on, noting that the trailing default rate in direct lending had risen to approximately 3.6% over four years, up from sub-1% during the low-rate environment. He characterized this as a healthy reversion to the historical mean of 3-4% and emphasized that the fundamental promise of private credit is delivering premium returns net of defaults. Put bluntly, he argued that it's naive to expect an absence of defaults. He believes that we have become calibrated to seeing very low defaults because we have been living in a prolonged macroeconomic backdrop conducive to low defaults and stronger balance sheets. He pointed out that high-profile blowups like First Republic's invoice financing were not transactions originated or managed by major private credit firms, and that performance dispersion across the industry is an expected and natural feature of a maturing market, not evidence of systemic fragility. The keynote ended with Patterson giving some advice. He acknowledged that we live in a period of rapid change, but investors should still hold the fundamental investing values, mainly first principles thinking and analytical rigor, in high regard. 

Ross M. Kwasteniet, Partner, Kirkland & Ellis (Moderator) - View Bio
Chris Koenig, Partner, Kirkland & Ellis - View Bio
Kumanan Ramanathan, Managing Director, Alvarez & Marsal - View Bio
Jane VanLare, Partner, Cleary Gottlieb Steen & Hamilton LLP - View Bio

Following the Patterson keynote, attendees split into two concurrent breakout panels. The first, led by Kirkland & Ellis, examined the key lessons learned from the crypto industry's first major wave of restructurings and explored how those lessons should inform preparation for future market disruptions. The 2022-2023 cycle, headlined by the collapses of FTX, Celsius, Voyager Digital, Core Scientific, BlockFi, and Genesis, served as the industry's trial by fire, forcing restructuring professionals to grapple with novel questions around digital asset custody, token tracing, and the classification of crypto holdings as property versus currency.

On the positive side, the institutional knowledge built through the 2022-2023 cycle is real and durable. The three major novel issues that defined the first wave, inter-debtor claims, government and regulatory settlements, and the Bankruptcy Code's dollarization provision, are now substantially better understood. Courts developed workable approaches to each, and the frameworks that emerged in those cases, including the construct of subordinating regulatory claims to customer claims dollar-for-dollar, may provide a blueprint for future proceedings involving restitutionary government claims. Kirkland and the other firms that worked these cases have built dedicated crypto restructuring practices with both the legal and technical infrastructure to handle them more efficiently next time.

A significant portion of the discussion focused on what made these restructurings uniquely challenging compared to traditional distressed situations. The absence of clear regulatory frameworks meant that courts were simultaneously interpreting novel legal questions, such as whether customer deposits constituted property of the estate or trust assets, while managing the day-to-day mechanics of complex cases. Token tracing, in particular, posed forensic challenges that have no real parallel in traditional restructurings: following digital assets across decentralized protocols, mixing services, and cross-chain bridges required a new breed of advisor with technical capabilities that most restructuring professionals had never needed before. Additionally, a major point of contention in such bankruptcies is the creditor recovery valuation, which is swayed by swings in cryptocurrency value as well. 

Looking ahead, the panel discussed whether the industry is better prepared for the next wave of crypto distress. The consensus was cautiously optimistic: bankruptcy courts have developed meaningful institutional knowledge, legal frameworks around digital asset treatment are more settled than they were in 2022, and the current regulatory environment has brought greater clarity (if not uniformity) to how crypto businesses are supervised. The deeper issue is that the next wave may not look like the last one. The 2022-2023 cycle was concentrated in centralized exchanges and lending platforms. These entities operated recognizable financial intermediary models that courts could ultimately shoehorn into existing Chapter 11 frameworks. The frontier of the next cycle is DeFi protocols, tokenized real-world assets, and increasingly complex cross-chain structures where the concepts of "property of the estate," "lien," and "secured creditor" may not map onto the underlying technology in any coherent way. The panel acknowledged this but did not engage with it directly. That gap is where the next genuinely hard crypto restructuring will emerge.

Dan Kelsall, Partner, AlixPartners (Moderator) - View Bio 
Leon Caine, Managing Director, Brightwood Capital Management 
Christian L. Oberbeck, Chairman, CEO & President, Saratoga Investment Corp. - View Bio 
Sandeep Parihar, Managing Director, JPMorgan 
Marija Pecar, Partner, Special Situations and Restructuring, Paul Hastings - View Bio 
Nate Simon, Principal, Special Situations Group, Ares Management - View Bio 

Running concurrently with the crypto panel, this session explored one of the most consequential shifts in the credit markets: the evolving dynamic between traditional banks and private credit lenders in the restructuring landscape. Two key points emerged. First, panelists argued that the BSL market remains a far more efficient mechanism than private credit during periods of instability and volatility. The tradability of BSL paper, while often criticized for introducing short-termism into creditor bases, is precisely what allows the market to clear and reprice risk quickly during dislocations. The opacity, which is a structural feature of private credit, as marks carry a significant lag to the market, makes it a less efficient option in times of stability. The corollary to this is that private credit thrives precisely when BSL markets are closed or impaired. When rate volatility froze the syndicated loan market in 2022, direct lending grew by 188% as sponsors turned to private credit for deal certainty. The pattern repeated itself in April 2025: following Liberation Day tariff announcements, for 15 consecutive business days through April 21, not a single broadly syndicated loan transaction launched in the U.S., marking the longest stretch of inactivity in the BSL market since early 2020. From a sponsor's perspective, this reliability in adversity commands a real premium, and helps explain why direct lending has captured roughly 90% of middle market LBO activity despite consistently wider (more expensive) pricing than BSL.

Second, the panel offered a useful analytical framework for understanding the competitive dynamics between the two markets: the ratio of M&A-driven transactions to refinancings. When M&A volumes are high, private credit tends to gain share because sponsors value the certainty, speed, and confidentiality that direct lenders provide in competitive auction processes. When the market shifts toward refinancing activity, as borrowers look to extend maturities or reprice existing debt, the BSL market's pricing efficiency and broader distribution give it a natural advantage. This was a great intuitive framework to understand the symbiotic relationship that exists between the private credit and BSL market. 

Furthermore, another framework to analyze the convergence between the BSL and private credit markets is by tracing the growth in dry powder. By mid-2025, global direct-lending assets had reached roughly $979bn, up from about $148bn a decade earlier, with the broader private credit market totaling around $1.8tn, including more than $500bn of committed but undeployed capital. That mountain of dry powder is itself a source of competitive pressure, which forces private credit managers to accept tighter pricing and looser terms to deploy capital, which in turn accelerates the convergence with BSL. 

The final theme that emerged from the panel explored the symbiotic relationship that exists between these two markets in the current environment. This tension between competition and cooperation, however, has increasingly resolved into something more nuanced: partnership. The panel noted that the traditional framing of banks versus private credit has been superseded by an ecosystem of co-origination, risk-sharing, and capital-efficiency arrangements. In February 2025, JPMorgan committed $50bn of its own capital to direct lending and secured an additional $15bn from third-party co-lenders. The market is not simply dividing into two clear camps; it is evolving into a more fluid credit ecosystem where the source of capital matters less than the terms, speed, and relationship economics on any given deal. 

Keswani’s keynote was a great extension of the morning keynote. Patterson, at the end of his keynote, claimed that Keswani embodies all of the investing ideals that HPS is built upon, mainly first-principles thinking and analytical rigor. Right off the bat, one of the first key themes was the split of deals between the private credit and BSL market which is approaching 50/50. Keswani cited a current spread differential of roughly 150-200bps between private credit and CLOs (which drive BSL spreads), while in previous years it was a multiple of this number. He credits this spread compression to the improving quality of companies in the underlying high-yield world. In other words, the fundamental quality of the businesses in the high-yield index has improved significantly over the past decade, warranting tighter spreads. 

Perhaps the most provocative segment of Keswani's keynote was his discussion of the evolving private credit fund structure landscape, specifically the rise of modern retail vehicles and the implications for market stability. Historically, the industry has embraced the drawdown model, which allowed GPs to evaluate an opportunity set over a 3-4 year time horizon. He argued that…