Private Credit Sector Faces Pressure Amid Rising Defaults and Stock Declines

The private credit market has experienced increased volatility, with several business development companies (BDCs) and alternative asset managers seeing notable declines in stock prices. These developments have drawn attention due to the sector’s exposure to software companies and the growing use of payment-in-kind (PIK) loan structures.

Investor concerns have contributed to recent stock drops among firms tied to private credit, particularly those with significant holdings in software-related loans. BDCs, which play a key role in this market, have seen their total assets rise but now face heightened scrutiny over loan risk profiles and repayment structures.

Blue Owl Capital’s stock fell by approximately 10.5%, reaching its lowest point in a year and marking a decline of about 50% from its all-time high. BlackRock TCP Capital reported a 19% reduction in its fourth-quarter net asset value, attributing much of this to challenges with six portfolio companies, including Edmentum, an educational software provider.

Following the net asset value decrease, BlackRock TCP Capital’s shares dropped 14% and are now down 46% over the past year, trading at a 25% discount to net asset value. Meanwhile, Ares Capital reported quarterly and annual earnings slightly above forecasts, maintaining a low level of non-accrual loans at 1.8% and achieving record new investment commitments.

What the numbers show

• Fitch reported a 5.7% trailing-twelve-month U.S. private credit default rate as of November 2025
• Companies with less than $25 million EBITDA had a 12.9% default rate
• Payment-in-kind interest accounted for 8% of BDC investment income on average
• BDCs’ total assets increased by 33% year-over-year in Q2 2025

Default rates in the private credit sector have varied based on borrower size. According to Fitch, companies with less than $25 million in EBITDA experienced a 12.9% default rate, while those in the $25–50 million range had a 4.2% rate. Larger companies with $100 million or more in EBITDA saw covenant default rates of about 1.4%.

Through the first nine months of 2025, S&P Global reported that the “true” private credit default rate, which includes selective defaults and liability management exercises, approached 5%. The use of payment-in-kind interest structures has become more common, with BDCs receiving an average of 8% of their investment income through PIK arrangements.

Software-related loans now represent roughly one quarter of BDC holdings, raising attention due to their risk characteristics and the frequent use of PIK interest. The overall private credit market has grown from about $2 trillion in 2020 to $3 trillion by early 2025, with projections suggesting further expansion in the coming years.

BDCs have become a half-trillion-dollar segment, with assets increasing 33% year-over-year as of the second quarter of 2025. Despite this growth, recent stock declines and rising default rates have led to greater focus on the sector’s risk management practices and loan exposures.

* This article is based on publicly available information at the time of writing.