Private-Credit Worry Sparks Slide in Booming Part of Muni Market

The concerns building in the private-credit industry are starting to inflict pain in a rapidly growing segment of the US municipal debt market.

The anxiety around private credit, where firms have faced high-profile blowups and redemption requests, has roiled select munis in a sector known as prepaid energy bonds. These securities allow municipal utilities to buy electricity or natural gas at a discount by locking in decades of supply upfront — savings they can pass on to customers.

Investors point to deals involving insurer Athene Annuity and Life Co., which is owned by Apollo Global Management Inc., ...