Steve Eisman, the fund manager from The Big Short, says a credit cycle is emerging and SoFi Technologies may be sitting at the center of it.

“There is no doubt in my mind that a credit cycle is emerging,” Eisman said on his weekly podcast.

He devoted a significant chunk of the episode to SoFi’s securitization problems, calling them “potentially a disaster.”

Eisman broke the mechanics down.

SoFi makes consumer loans, pools them into securitizations, and sells the debt to investors.

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SoFi charges borrowers 10%, pays securitization investors 5%, and keeps the spread. That spread is SoFi’s entire margin.

When losses breach a preset level called the cumulative net loss trigger, SoFi stops getting paid.

Eisman cited Bloomberg data showing SoFi’s SCP 2025-1 securitization hit CNLs of 2.97% against a trigger of 2.60%.

Everything now goes to securitization investors until they’re made whole. He added that the 2025-2 deal looks likely to breach next.

“If securitization investors decide they no longer want SoFi paper, SoFi will not be able to lend.”

Short-selling firm Muddy Waters Research, led by Carson Block, published a 28-page short report on SOFI on March 17 calling the company a “financial engineering treadmill” and alleging $312 million in unrecorded debt.

SoFi fired back the same day, calling the report “factually inaccurate and misleading” and threatening legal action.

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CEO Anthony Noto bought $500,000 in shares in an attempt to reassure the market.

Muddy Waters wasn’t impressed.

In a follow-up published Saturday titled “Eleven Questions, Zero Answers,” the firm said SoFi’s response “did not address a single factual claim” and noted Noto’s share purchase amounted to roughly 0.86% of the $58.3 million he and CFO Chris Lapointe have already extracted through prepaid variable forward contracts.

SOFI is down roughly 35% year-to-date.

Eisman framed SoFi as one symptom of a broader private credit reckoning. The market has ballooned from $300 billion to $1.8 trillion in a decade, with 80% of direct lending funding private equity buyouts.

He called the structure circular: “In one part of the business, private equity buys companies, and in another part of the business, private equity lends money to itself to buy those companies.”

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Apollo Global Management co-president John Zito warned at a private UBS client event that software loans may recover only 20 to 40 cents on the dollar.

The remarks were intended to be off the record but were reported by the Wall Street Journal via audio recordings.

Prediction market bettors are pricing the risk accordingly.

Polymarket’s U.S. recession contract sits at 35%. Kalshi’s equivalent hit 38% earlier this month driven by oil above $100 and the Strait of Hormuz closure.

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This article 'Big Short' Legend Steve Eisman Says SoFi's Private Credit Problems Could Be 'Potentially A Disaster' originally appeared on Benzinga.com