De-constructing the latest Fitch Ratings Private Credit "Default Rate".
September 16, 2026
NEWS
Fitch Ratings-Monterrey/Austin/New York-14 September 2026: Fitch Ratings recorded a U.S. Private Credit Default Rate (PCDR) of 6.3% for the trailing 12 months (TTM) ended August 2026, up from 6.1% in July 2026 and a record high. The PCDR has remained at or above 6.0% since April 2026.
In the August TTM period, 89 unique defaulters generated 109 default events, up from 83 unique defaulters and 105 default events in July 2026.- Fitch Ratings September 14, 2026
For the full press release, click here.
The Fitch report received considerable financial press coverage, as the authors intended. Bloomberg wrote an article the same day, which repeated some of the highlights.
CNBC broadcast an update on the Fitch report, quoting the headline and some other data.
Other key financial publications, newswires, and specialized platforms that covered the report and its underlying data included:
- Investment Executive: Published comprehensive breakdowns of the Fitch data, focusing on the sector-specific pressures (noting that healthcare and industrial/manufacturing reached 9.9% default rates, while software bucked the trend down to 0.6%).
- Private Equity Wire: Covered the announcement, emphasizing how suppressed deal liquidity, macro uncertainty, and an increase in stress-driven maturity extensions (making up 45% of August's events) are forcing portfolio companies to restructure.
- Specialized Markets & Financial Channels: Various specialized financial research feeds (such as BigGo Finance and ABAB News) detailed Lyle Margolis's (Head of Fitch's North American private credit group) commentary on how interest rate and inflation uncertainty continues to restrict deal exits and secondary market transactions.
The general take-away is that "defaults" in Private Credit are rising and have reached "record" levels. This fits into a broader narrative since last year that Private Credit is "in trouble".
Not So Fast
The BDC Credit Reporter has read the latest Fitch press release and their January 2026 "default rate methodology", as well as prior findings by the ratings group.
In this article, we'd like to de-construct this latest press release in order to keep our readers from jumping to conclusions based on headlines or partial information.
Not All Inclusive
Let's start by pointing out that the what Fitch calls the "U.S. Private Credit Default Rate (PCDR)" is not that. Fitch is combining two different set of borrowers, one with about 1,000 constituents and another with 300. (Duplicates are removed, to avoid overlap).
In no way is that a comprehensive reflection of the entire Private Credit universe which is, in any case, a very nebulous matter. As shown below, the total market involves 3,000 to 6,000 borrowers in the United States.
Estimated Total Market Universe
Industry data and analyses from S&P Global, credit benchmark platforms, and major direct lending portfolios indicate that the active universe of distinct U.S. middle-market and lower-upper-middle-market private credit borrowers spans roughly 3,000 to 5,000 active corporate issuers at any given time.
When widening the lens to include overlapping syndicated facilities, smaller club deals, and non-sponsored lower-middle-market borrowers (where EBITDs hover around the $5 million floor), the broader ecosystem encompasses up to 6,000+ distinct entities, though many smaller entities borrow strictly from regional banks or specialized alternative lenders rather than major private credit funds.
In the BDC group that we focus on, we generally assume, the number of debt issuers amounts to over 5,000 individual names. Included therein are a portion of foreign-based companies, presumably not included in the Fitch data.
Generalizing about the level of defaults and their direction in the entire Private Credit sector from Fitch's relatively small sample could be seriously misleading.
When Is A Default Not A Default?
Reasonably enough, Fitch wants to capture which companies are credit-stressed but has not changed its terminology to reflect what it is doing.
Typically a default is understood to be a:
"Payment Default: The most common form, occurring when a borrower fails to make scheduled payments of interest, principal, or fees by the designated due date or within an allowable grace period".
In fact, in the latest report "uncured payment defaults represented only 8%" of the total. Another 4% involved "bankruptcies, liquidation, debt-for-equity swaps, or out-of-court restructurings in which sponsors ceded control to lenders".
However, the vast majority of the "defaults" consisted of "interest payment deferrals and the introduction of payment-in-kind (PIK) in lieu of cash interest" and "maturity extensions under stress", which together amounted to accounted for 88% of the "defaults".
This expanded definition by Fitch of what a default consists of is attention gathering but likely overstates income and/or capital lost by the lenders involved.
Sometimes PIK is charged, and eventually collected, as the company involved seeks out a buyer, the sale of some assets or a re-organization. Ironically, in the short run, a lender's income may actually increase for a time when PIK is charged as a temporary expedient.
Likewise, when loan maturities are extended "under stress", lenders will sometimes increase their pricing, paid in cash, or PIK or some combination, until a more permanent resolution is found.
At best, the Fitch data is useful to the insurers and others who have paid for their coverage of the companies involved to give them a sense of the credit stress they are under.
However, the Fitch data does not and cannot reflect real payment default levels in the Private Credit sector at large, or in the BDC sector.
[This is especially the case where the "Privately Monitored Rating (PMR) portfolio" is concerned, one of the two components of the PCDR. Only 300 companies are involved, all financed by insurance companies who, pay Fitch to rate them.
The number of borrowers is tiny compared to the total borrower universe and the credit characteristics of these companies are likely to vary from their non-Fitch rated peers].
The Challenge
The fact of the matter is that no reliable data exists about the level of defaults for the entire Private Credit sector.
Besides Fitch, many other ratings groups publish "default" data. Here are the latest default findings and credit health metrics from S&P Global, Moody's, KBRA, Proskauer, and Lincoln International which highlights the structural differences in how each group measures stress. Rather than pointing to a single uniform number, these five organizations capture different layers of the private credit ecosystem—ranging from broad rating agency estimates to specialized direct lending indices.
Comparison of Latest Findings
| Ratings Group / Tracker | Reported Default Metric / Rate | Core Focus & Methodology |
| S&P Global Ratings | ~3.5% to 4.6% (speculative-grade/private credit estimates) | Focuses on a broad "selective default" framework. S&P captures missed payments alongside distress events like Payment-in-Kind (PIK) conversions that trigger selective default downgrades. |
| Moody’s Ratings | 1.6% to 4.7% range (estimated baseline) | Evaluates private credit risk through credit estimates and probability-of-default models, explicitly noting that the wide range depends entirely on whether "soft" restructurings and debt exchanges are included. |
| KBRA (KBRA DLD Index) | 2.3% trailing 12-month rate (projected to reach 3.5% by year-end) | Tracks roughly 3,000 BDC-backed issuers. Measures a mix of payment defaults and structural distress, noting that recovery expectations are declining for smaller/mid-sized borrowers. |
| Proskauer (Private Credit Default Index) | 2.73% (recent quarterly index tracking) | Concentrates on senior-secured and unitranche loans. Heavily weights hard payment defaults and formal covenant breaches, showing rates tracking slightly up but remaining lower than broadly syndicated loan equivalents. |
| Lincoln International (Lincoln Senior Debt Index) | 2.7% size-weighted covenant default rate | Tracks middle-market direct loans via enterprise value and valuation metrics. Emphasizes technical covenant health alongside a "Bad PIK" shadow default rate (~6%) to spot hidden liquidity stress before it hits formal default. |
News You Can Use
We have four points to make:
First, neither Fitch, nor any other ratings group, can claim to reflect the realities on the ground of the entire Private Credit eco-system.
Journalists, commentators and some investors may desire such a short cut but none exists and likely never will.
Anybody taking Fitch's report as gospel for the BDC sector could be seriously mistaken.
Second, we do believe reports like Fitch's can be useful but only if read in conjunction with those of other groups and carefully parsed for differences in borrower coverage, methodology, time frame and much more.
The danger is "analysis paralysis" or just plain confusion.
The third point, which the better BDC managers themselves love to make, is that averages tell you nothing about individual BDC default performance, however that term is defined.
For an investor in the BDC sector, the variations can be huge between the top and the worst BDCs.
Finally, as we all know but sometimes forget, BDCs are not just lenders.
They are also equity investors in companies, and their investments often result in substantial gains.
This is even the case for companies that might be in "default" today.
Tomorrow, or after tomorrow that "distressed" ugly duckling of a company might turn into a swan when sold for a profit following a restructuring.
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