Cooling Inflation Meets Regulatory Heat as Private Credit Faces Valuation Scrutiny Amid Political Gridlock

Middle market debt landscape shaped by constructive inflation data, SEC focus on private credit valuations, and political uncertainty from government shutdown and Fed leadership transition.

Published on Feb. 18, 2026

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The middle market debt landscape for the week ending Feb. 15, 2026, was shaped by a constructive inflation print that offered borrowers a glimmer of hope for eventual rate relief, even as the SEC's intensifying focus on private credit valuation practices and a partial government shutdown affecting the Department of Homeland Security underscored persistent structural and political risks.

Why it matters

The SEC's focus on private credit valuation practices reflects broader concerns about the retailization of private markets, as BDCs and interval funds increasingly reach retail investors. Recent market dislocations have raised questions about whether quarterly mark-to-market policies and independent validation procedures adequately protect investors from stale or aggressive valuations. The government shutdown also introduces fresh political uncertainty, maintaining elevated risk premiums and complicating forecasting for borrowers with federal contract exposure.

The details

The January Consumer Price Index showed headline inflation cooling to 2.4% year-over-year, the lowest reading since May 2025, while core CPI eased to 2.5%. The Federal Reserve maintained the fed funds rate at 3.50-3.75% following three consecutive 25-basis-point cuts to close 2025. The SEC's FY 2026 examination priorities explicitly identify alternative investments, particularly private credit and private funds, as focus areas, with a emphasis on valuation governance, fee allocation practices, and potential conflicts of interest. The First Brands Group bankruptcy continued to deteriorate, with reports emerging that the auto-parts maker and certain creditors are weighing a shift of some units into Chapter 7 liquidation. Advantage Solutions moved forward with a debt exchange transaction that subordinates non-consenting lenders, highlighting the escalating cost of refinancing and creditor-on-creditor dynamics.

  • The January Consumer Price Index was released.
  • The Federal Reserve maintained the fed funds rate at 3.50-3.75% following three consecutive 25-basis-point cuts to close 2025.
  • The SEC's FY 2026 examination priorities were released in November 2025.
  • The First Brands Group bankruptcy has been ongoing.
  • Advantage Solutions entered a Transaction Support Agreement on February 6, 2026.

The players

SEC

The U.S. Securities and Exchange Commission, the federal agency responsible for regulating the securities industry, including the oversight of private credit and alternative investment funds.

First Brands Group

An auto-parts manufacturer that has filed for bankruptcy and is facing potential Chapter 7 liquidation of some units.

Advantage Solutions

A company that has moved forward with a debt exchange transaction, subordinating non-consenting lenders.

Patrick James

The former CEO of First Brands Group who has been indicted on federal charges including conspiracy to commit wire fraud, bank fraud, and money laundering.

Edward James

The brother of former First Brands Group CEO Patrick James, who has also been indicted on federal charges.

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What they’re saying

“Federal Reserve Governor Lisa Cook has also validated systemic risk concerns, noting that the structural shift from bank lending to private credit creates new financial stability considerations as the sector now exceeds $1.7 trillion.”

— Lisa Cook, Federal Reserve Governor (abfjournal.com)

What’s next

The judge in the First Brands Group bankruptcy case will decide on Tuesday whether or not to allow the company and certain creditors to shift some units into Chapter 7 liquidation.

The takeaway

This report highlights the growing regulatory scrutiny of private credit valuation practices, the risks of creditor-on-creditor dynamics in liability management transactions, and the persistent political uncertainty that can disrupt economic data and complicate forecasting for middle market lenders and borrowers.