Finance
Some private credit firms are using accounting tools to mask leverage, Rubric Capital tells investors
Published by Global Banking & Finance Review®
Posted on February 26, 2026
2 min readLast updated: February 26, 2026
Quick Summary
Rubric Capital warned investors some BDCs may move borrowings off balance sheets between quarters via repo-like loans, masking leverage. The alert follows 2025 failures like First Brands and Tricolor, intensifying scrutiny of private credit.
Rubric Capital Flags Accounting Tactics Hiding Leverage at Private Lenders
By Nell Mackenzie
BDCs and Alleged Accounting Practices
LONDON, Feb 26 (Reuters) - Some private credit firms that borrow from retail investors may be embellishing their financial health, Rubric Capital, a $3 billion hedge fund founded by a former Point72 star manager, warned its backers in a letter seen by Reuters.
The hedge fund said some business development companies (BDCs), which lend to small enterprises, are shifting borrowings from the balance sheet between quarters, making them appear less indebted, the February 18 letter shows. The debt then reappears on the balance sheet a few days after quarter end, it added.
"Our key takeaway from this behavior is that distribution cuts are so worrisome that some bad actors are playing Enron-like accounting games," the letter said.
Use of Repo-like Loans
The firms are using repo-like loans from one particular investment bank to mask debt, the letter says.
Industry Response and Verification
Rubric Capital did not name the bank nor the BDCs involved and Reuters was unable to independently verify whether this practice is being deployed and at what scale.
Rubric Capital declined to comment when contacted by Reuters.
Market Context and Risks
The private credit market has been gripped by anxiety in recent months since the bankruptcies of auto-parts maker First Brands and subprime lender Tricolor last year. The fallout has sharpened scrutiny of a market that has grown quickly, drawing large institutional investment and rising corporate lending in recent years. A renewed bout of uncertainty has flared up in recent weeks.
Scale of the BDC Sector
The BDC industry oversees over $300 billion in assets under management and accounts for roughly one quarter of direct lending in the United States, according to a Bank for International Settlements note in July. The closed-end investment vehicles can be private or listed on stock exchanges.
Enron Comparison and Concerns
Enron went bankrupt in 2001 after using off-balance-sheet vehicles and other accounting tricks to hide tens of billions of dollars of debt.
Reporting and Editorial Notes
(Reporting by Nell Mackenzie; editing by Dhara Ranasinghe, Anousha Sakoui and Elisa Martinuzzi)
Key Takeaways
- •Rubric Capital told investors some BDCs shift borrowings off balance sheets between quarters to appear less leveraged.
- •The letter alleges repo-like loans from one investment bank temporarily mask debt before it reappears after quarter-end.
- •Rubric said distribution cut fears may be driving “Enron-like” accounting behavior among certain actors.
- •Reuters could not verify the practice or identify the firms or bank; Rubric declined further comment.
- •Scrutiny of private credit has risen after 2025 bankruptcies at First Brands and Tricolor amid a rapidly growing BDC market.
Frequently Asked Questions about Some private credit firms are using accounting tools to mask leverage, Rubric Capital tells investors
1What is the main topic?
A Rubric Capital investor letter warns that some business development companies (BDCs) may be using accounting maneuvers to shift borrowings between quarters, masking true leverage.
2How are BDCs allegedly masking leverage?
The letter claims certain BDCs use repo-like loans from an investment bank to move debt off balance sheets near quarter-end, with the liabilities reappearing days later.
3Why does this matter to investors?
If leverage is understated, distributions and risk profiles could be misread. The warning comes amid heightened scrutiny of private credit after several high-profile 2025 bankruptcies.
