Default warnings Start to Pile Up in U.S. Private Credit Market

Warnings about defaults are mounting in the $1.7 trillion private credit market, prompting some analysts to flag underappreciated risks in one of Wall Street’s favorite businesses, Kat Hidalgo reported for Bloomberg News.

Current default rates are estimated at 2% to 3%, but the figure rises to 5.4% if loans expected to generate losses are counted.

For years, losses in private credit have been limited because lenders typically have more flexibility than traditional investors to work with troubled borrowers. During the pandemic, direct lenders often gave companies extra time to pay, negotiating behind the scenes with private equity owners.

But this month, several analysts have highlighted growing stress — including some lenders themselves.

While there is no universal definition of default in private credit, current default rates are estimated at 2% to 3%. If so-called non-accrual loans — those expected to generate losses — are included, the figure rises to 5.4%, according to a JPMorgan Chase & Co. report based on data from KBRA DLD.

That adjustment puts private credit default rates broadly in line with those in the syndicated loan market.