S&P Warns of AI Debt and Private Credit Risks in 2026 Outlook

LONDON – February 17, 2026 – Global credit markets stand at a critical juncture, fueled by a transformative technology boom but shadowed by mounting leverage and growing opacity, according to a new report from S&P Global Ratings. The analysis, titled "Liquidity Outlook 2026: Six Questions, Six Answers," identifies a complex interplay of forces set to shape market liquidity, highlighting the unprecedented financial demands of artificial intelligence, the surging influence of private credit, and the systemic fragility posed by highly leveraged nonbank financial institutions (NBFIs).

While the U.S. Federal Reserve is expected to pursue measured rate cuts, providing some relief, the report cautions that deep structural shifts are testing the resilience of the global financial system. "We identified six key issues that could affect credit market liquidity over the coming year," said S&P Global Ratings analyst Nicolas Charnay. The findings paint a picture of a market grappling with immense opportunity and significant, interconnected risks.

The AI Gold Rush's Billion-Dollar Bill

The artificial intelligence revolution is demanding a historic capital outlay, placing immense pressure on corporate balance sheets and bond markets. The world's top five U.S. hyperscalers are projected to spend a staggering $660 billion to $690 billion on capital expenditures in 2026, a massive increase driven almost entirely by the buildout of AI infrastructure. This spending spree has fueled a record-breaking surge in debt issuance, with the tech sector representing 16.7% of all global non-financial corporate bonds in 2025, up from 11.6% the year prior.

This capital is being deployed to construct vast, power-hungry data centers, the physical backbone of the digital economy. The financing for these projects has given rise to a booming market for data center securitization, where volumes nearly tripled to over $30 billion in 2025. While strong tenant demand from tech giants currently underpins the credit quality of these securities, the rapid pace of development raises concerns about technological obsolescence and the immense strain on power grids.

Although the cash flows of major tech firms remain robust, the sheer scale of borrowing is beginning to show on their financial statements. The median debt-to-EBITDA ratio across large tech firms has nearly doubled since 2020, and the capacity of primary bond markets to continue absorbing this level of issuance is a key question for 2026. The sustainability of this AI-driven spending hinges on whether the technology can generate returns fast enough to justify the enormous debt being raised to fund it.

Private Credit's Double-Edged Sword

Moving in parallel with the public market's AI frenzy is a quieter but equally profound revolution in the private credit space. With assets under management swelling past $1.6 trillion, this market has become a vital source of capital, particularly for companies that are too small, too risky, or require more flexible terms than public markets or traditional banks can offer. For four consecutive years, private credit has outpaced broadly syndicated loans for borrowers rated 'B-' and below, providing nearly $146 billion in financing in 2025.

This growth is driven by both supply and demand. Post-2008 regulations have caused banks to retreat from riskier lending, creating a void that private credit funds, backed by yield-hungry institutional investors, have eagerly filled. However, this shift of lending from the regulated banking sector to the more opaque world of private deals comes with its own set of risks.

The borrowers who rely on private credit are often more highly leveraged and vulnerable to economic downturns. The prevalence of floating-rate loans in this sector has already increased pressure on these companies amid higher interest rates. This dynamic is set to be tested as a significant "refinancing wall" approaches. According to S&P Global, U.S. maturities of debt from borrowers rated 'B-' and below will surge from $56.6 billion in 2026 to a peak of $215 billion in 2028, creating immense pressure on both private and public markets to facilitate the rollovers.

Shadow Leverage and Systemic Fragility

The report sounds a clear alarm on the risks emanating from nonbank financial institutions, particularly highly leveraged hedge funds. These entities, often referred to as the 'shadow banking' system, have become increasingly important players in global credit, but their limited transparency and reliance on short-term funding create a significant source of potential financial fragility.

Regulators face persistent data gaps that make it difficult to fully assess the multiple layers of leverage and interconnectedness within the NBFI ecosystem. These institutions are deeply intertwined with the traditional banking system, which provides them with leverage and funding. In a market stress scenario, this interconnectedness could amplify shocks, as forced asset sales by NBFIs could trigger broader market volatility and credit losses for their banking counterparts.

The concern is that while direct exposures may appear manageable, stress can propagate through indirect linkages and complex financial instruments. "In addition to leverage at nonbank financial institutions, risks related to AI valuations, and events at the Fed, we will also be watching for clarification of U.S. bank capital and stablecoin regulations, which could gradually impact systemwide liquidity," Charnay noted, underscoring the multifaceted nature of the risks being monitored.

While S&P Global's analysis suggests that other global factors, such as rising Japanese bond yields, are unlikely to have a major, sustained impact on global bond markets, the primary focus remains on the internal dynamics of the credit system. The convergence of a debt-fueled technology buildout, a burgeoning and opaque private lending market, and a looming refinancing cliff for the riskiest borrowers creates a complex and challenging landscape for investors and policymakers to navigate in the year ahead.