Rising Private Credit Defaults Are Testing Banks And Insurers

MoneyBanking & InsuranceRising Private Credit Defaults Are Testing Banks And InsurersByMayra Rodriguez Valladares,Senior Contributor.Follow AuthorMay 24, 2026, 02:10pm EDT--:-- / --:--This voice experience is generated by AI. Learn more.This voice experience is generated by AI. Learn more.As long as inflation is elevated, private credit defaults will continue to rise.MRVPrivate credit has grown into a $2 trillion industry over the past decade, financing software companies, healthcare rollups, and industrial firms. Fueled by ultra-low interest rates, post-2008 banking regulations, and yield-hungry investors, it became one of the most powerful forces in global finance. Now the environment that created it has reversed: rates are elevated, refinancing has become harder, and the first real signs of stress are emerging across the asset class.The Big Concern: Defaults Are Rising — And May Understate True StressRecently, key rating agencies and financial institutions have been publishing important data that shows that the credit quality in private credit is worsening. In May 2026, Fitch Ratings reported that the U.S. private credit default rate hit a record high of 6.0% in April. The credit rating agency also estimated that private-credit-backed corporate borrowers experienced a 9.2% default rate in 2025. Moody's estimates that distressed restructurings — debt exchanges and maturity extensions agreed under duress — accounted for roughly 65% of all 2025 private credit defaults. Excluding them produces headline rates of 1.6%–4.7%; including them reveals a materially worse picture. Rising payment-in-kind income at business development companies is an additional early-warning signal.Proskauer's Private Credit Default Index, tracking 697 loans totaling $189.2 billion, recorded a 2.73% default rate in Q1 2026 — up from 1.84% just two quarters earlier. Bank of America's credit strategy team has called private credit "the lowest quality asset class across ou...