US Private Credit Defaults Hit Record 9.2%, Fitch Reports

Record High Default Rate in US Private Credit

Fitch Ratings has reported that the default rate for U.S. corporate borrowers in the private credit market reached a new record of 9.2% in 2025. This figure surpasses the previous record of 8.1% set in 2024, signaling increased financial stress among privately backed companies.

Market Context and Affected Borrowers

The report, which monitored 302 middle-market companies, identified 38 defaults across 28 different borrowers throughout the year. The majority of these defaults occurred among smaller issuers with earnings of $25 million or less. The defaults were diversified across various sectors and included both bankruptcy filings and distressed debt exchanges, where borrowers restructured terms with lenders.

Impact of Interest Rate Environment

The primary catalyst for the rising defaults is the sustained high-interest-rate environment. Most private credit loans are structured with floating rates tied to the federal funds rate. Fitch noted that these borrowers typically have minimal interest rate hedges in place, leaving their cash flows highly exposed to elevated rates and increased borrowing costs.

Outlook and Key Factors

The record default rate highlights the vulnerability of middle-market companies to persistent high interest rates. The financial health of this sector will remain a key area to watch, with market participants closely monitoring central bank rate policies. Despite a market-wide sell-off in technology, Fitch recorded no defaults in the software sector, noting its specific classification methodology.

Frequently Asked Questions

Q: What was the private credit default rate in 2025?
A: According to Fitch Ratings, the default rate for U.S. private credit borrowers hit a record 9.2% in 2025.

Q: What caused the increase in defaults?
A: The primary cause was the high-interest-rate environment, as most loans are floating-rate with little to no hedging, making companies' cash flow vulnerable.

Source: Investing.com