Private Credit Default Rates to Reach 8%

Default rates in private credit are already near or above 8% on some measures, and several sell‑side and manager outlooks see plausible paths to high‑single‑digit or even mid‑teens defaults in stress scenarios over the next couple of years.

Where defaults are today

• Fitch reports that US private credit defaults in its monitored portfolio reached a record 9.2% in 2025, up from the prior record of 8.1% in 2024.

• Separate commentary notes private credit institution default rates at about 5.8% as of January 2026, the highest since the index began in 2024, reflecting a steady climb since 2025.

• Some industry research highlights that while headline “payment default” rates have been under 2%, once PIK toggles, maturity extensions, and other liability‑management trades are included, the effective default or “shadow default” rate is closer to 5%.

Who is forecasting 8% (and higher)

• Fitch’s realized 2024 default rate of 8.1% and 2025 rate of 9.2% essentially show that the market has already breached an 8% annual default rate in parts of US private credit, especially in smaller, highly levered borrowers.

• UBS strategists now model a worst‑case scenario in which private credit defaults could reach around 15%, up from a previous 13% estimate, implying that high‑single‑digit levels like 8% are well within their central stress path rather than a tail.

• Partners Group has warned that private credit default rates could roughly double over the next few years, indicating an expectation of materially higher defaults from recent “benign” levels and supporting the notion of an approach toward high‑single‑digit rates across broader segments of the market.​

Selected views on default levels

Drivers pushing toward 8%+

• Elevated and persistent short‑term rates on largely floating‑rate capital structures, often with limited interest‑rate hedging, are compressing coverage ratios and driving payment stress.

• Increased use of payment‑in‑kind interest and distressed maturity extensions signals that many sponsors are already relying on amend‑and‑extend tools rather than genuine deleveraging, which can convert into hard defaults as liquidity shrinks.

• Sector concentrations (especially software/SaaS and consumer‑exposed names) plus potential AI‑driven disruption and geopolitical shocks (e.g., conflict‑linked inflation) are key channels through which stress could escalate default rates.

How to interpret “8%” in practice

In practice, “private credit default rates to reach 8%” can mean:

• A realized annual rate in a defined monitored universe (as with Fitch’s PMR portfolio, which has already printed above 8% in 2024–2025).

• A forward‑looking scenario or stress case that assumes more aggressive deterioration from today’s 3–6% effective levels, often tied to specific macro or sector shocks.

For portfolio or policy work, the key is to align which universe you care about (US middle‑market direct lending, global private credit, bank‑dependent NBFIs, etc.) and whether you treat PIKs and “creative” restructurings as defaults for your internal metrics.