Funds are buckling, BDCs are bleeding, and investors are pulling capital
The US private credit market recorded its highest default rate on record in April and analysts say the worst may be yet to come.
Fitch Ratings' US private credit default rate hit 6.0 percent for the twelve months ended April 2026, up from 5.7 percent in March, marking the highest reading since the index launched in 2024, CNBC reported.
The agency recorded 10 defaults in April alone, with seven involving “stressed” maturity extensions that pushed loan due dates out by one to two years.
The deterioration is arriving alongside sharply higher borrowing costs.
CNN Business reported the 30-year US Treasury yield climbed to 5.2 percent, its highest since 2007, as the ongoing US-Israel war on Iran drove oil and gas prices to multi-year highs and kept the Strait of Hormuz effectively closed.
Because private credit firms price loans off Treasury spreads, rising yields force refinancings at materially higher cost.
Westwood Capital managing partner Dan Alpert told CNBC Tuesday that higher Treasury rates are making refinancing harder in a market already “jittery” about inflation.
Separating macroeconomic factors from “significant credit weakness in private credit,” he said, is “very, very difficult.”
Institutional investors are responding by pulling capital.
Redemptions from unlisted business development companies outpaced fundraising in the first quarter, pushing the Stanger NL BDC Total Return Index to its first negative quarterly return since 2022, CNBC reported, citing Robert A. Stanger & Co. data.
S&P Global said in an analysis released Tuesday that earnings call sentiment among Apollo Global Management, Blackstone, The Carlyle Group, and KKR “plummeted to a multiyear low.”
KKR led the decline with a total return of -19.4 percent between January 1 and May 8, while the S&P 500 gained 8.5 percent over the same period.
Fund-level interventions have multiplied in recent weeks.
Days after a JPMorgan Chase-led bank group cut FS KKR Capital Corp.'s credit line by US$648m to US$4.05bn, KKR injected US$150m in equity and committed another US$150m to buy out exiting investors, CNBC reported.
Bloomberg reported the US Department of Justice is separately investigating the valuation practices of BlackRock TCP Capital Corp.
The Manhattan US Attorney's office is seeking information about the BDC following a 19 percent drop in its net asset value per share in January.
Blackstone Secured Lending Fund's net asset value per share also fell 2.4 percent to US$26.26 in the first quarter, its earnings disclosure showed, according to CNBC.
Morgan Stanley strategist Vishwas Patkar told clients Tuesday the situation did not pose a systemic risk.
“Private credit faces higher defaults, but risks are not systemic,” he said, adding that spillovers to the economy and public markets would be limited.
The next phase of private credit will likely focus on higher-quality underwriting and AI-driven infrastructure financing, he added.
The sector is simultaneously pushing to expand its investor base into retail and retirement accounts, a move drawing scrutiny from some market participants.
Franklin Templeton CEO Jenny Johnson said last week retirement accounts were “the best place for this,” citing low liquidity requirements.
DoubleLine Capital CEO Jeffrey Gundlach offered a sharper assessment to Bloomberg earlier in May, saying the private credit machine has “kind of reached its limits with institutional investors” and likening it to “the Social Security system.”
