Private Credit Defaults Surge Tenfold Among Small Borrowers
Event summary
- Default rates among private credit borrowers with <$100M EBITDA hit 3.6% by count in Q2 2026, up tenfold since 2023.
- Healthcare sector saw highest defaults at 4.2% by count, while software had lowest default rates.
- 7% of all loans priced below 90% of par, with 12% for borrowers with $10M–$20M EBITDA.
- PIK interest elections reached 11.8% of loans by size, but only 1.6% of interest dollars involved amended PIK.
- Median revenue and EBITDA grew 6.5% and 7.4% YoY, with two-thirds of borrowers showing growth.
The big picture
The data highlights a growing bifurcation in private credit, where smaller borrowers face rising defaults while larger entities remain resilient. This trend underscores the importance of borrower scale in credit risk, with sector-specific stress adding another layer of complexity. The stability in loan valuations and borrower fundamentals suggests underwriting discipline, but the concentration of stress in specific segments could signal broader market challenges ahead.
What we're watching
- Borrower Segmentation
- How the divide between small and large borrowers will shape private credit performance through 2026.
- Sector Concentration
- Whether stress in healthcare and consumer sectors will spread to other industries.
- Valuation Trends
- The pace at which loan valuations below 90% of par will impact investor returns.