Private credit dislocation

HedgeCo.Net (Grade C, 2026-05-22) reports LP and regulatory scrutiny of the semi-liquid product label on interval funds and non-traded BDCs is intensifying, with CAIA distinguishing redemption requests -- which can surge far above quarterly caps -- from amounts actually honored. Reuters-cited bond spread divergence shows smaller private credit lenders priced at meaningfully higher risk than larger players.

If a retail investor believed 'semi-liquid' meant 'I can get out when I need to,' then the label may have done more to obscure risk than explain it.

CNBC (Grade B) reports Fitch Ratings U.S. private credit default rate (PCDR) reached a record 6.0% for the trailing twelve months ended April 2026, up from 5.7% in March 2026 -- the highest since the index launched in 2024. Ten private credit defaults were recorded in April, seven involving maturity extensions described as under stress. KBRA alternate default monitor edged down to 3.1% in April from a 2025 peak of 3.9%, a partial counterfactor acknowledged.

Fitch Ratings' U.S. private credit default rate reached a record of 6.0% for the twelve months ended April 2026, which was up from 5.7% in March. The ratings agency clocked 10 private credit defaults last month, with seven of those engaging in maturity extensions that were 'under stress.'

Bloomberg News (Grade B, 2026-05-21) reports BDC managers are actively trading private credit loans to trim distressed software and ARR-underwritten positions -- Goldman Sachs BDC (GSBD) executives publicly stated they are proactively managing legacy ARR positions through strategic exits or conversions to EBITDA-based loans. JPMorgan Chase traded $2 billion in private credit loans year-to-date 2026, more than in all prior years combined. Secondary private credit trading is on track to more than double 2025 record volume per HarbourVest. Primary Bloomberg URL returned 403; content verified via Advisor Perspectives syndication (2026-05-22).

JPMorgan Chase & Co. recently said that it had already traded $2 billion of private credit loans this year, more than in all prior years combined. We are proactively managing our legacy ARR positions through strategic exits or by facilitating conversions to Ebitda based loans -- Vivek Bantwal, Goldman Sachs.

Moody's Analytics research cited by Alternative Credit Investor (May 20, 2026, Grade B) finds approximately 65% of 2025 corporate defaults were distressed restructurings -- soft credit events that often defer rather than resolve underlying stress -- with more than 1 in 3 ultimately resulting in hard default or repeat credit event within two years. Analyst David Hamilton warns that improvement in private credit default metrics may be slower and more fragile than it appears, with Moody's baseline GDP forecast near 1.5% at stall-speed threshold.

"The composition of those defaults, heavily weighted toward soft credit events that often defer rather than resolve underlying stress, means improvement may be slower and more fragile than it appears" -- David Hamilton, Moody's Analytics; approximately 65% of 2025 corporate defaults were distressed restructurings and more than 1 in 3 ultimately result in hard default.

HedgeCo.Net (May 18, Grade C unlisted publisher) reports Q1 2026 non-listed BDC redemptions of $6.9B exceeded fundraising of $4.9B -- a net outflow of $2.0B -- citing Robert A. Stanger and Co. data, confirming the first-ever net-outflow quarter for non-traded BDCs. Apollo/MidCap Financial Investment Corp. fund default rate increased to 5.3% in Q1 2026 from 3.9% in December 2025. Federal Reserve characterized Q1 private credit outflows as moderate and risks as manageable.

Sponsors met approximately $6.9 billion in redemption requests while non-listed BDCs raised roughly $4.9 billion in Q1 2026, with net outflows of about $2 billion -- the first time more was redeemed than raised; Apollo / MidCap Financial Investment Corp. fund default rate increased to 5.3% in Q1 2026 from 3.9% in December 2025

Fortune (Grade B, May 17, 2026) reports the Manhattan US Attorney's Office (SDNY) has been seeking information about BlackRock TCP Capital Corp (TCPC) and questioning executives regarding valuation practices following a 19% NAV decline from $8.71 to $7.07 per share. SDNY head Jay Clayton stated that mismarking valuations to generate fees has 'always been a no-no,' with TCPC shares falling 13% on January 26 and recording an annual decline of 24% in 2026.

"If people are mismarking in order to generate fees, that's always been a no-no" stated SDNY head Jay Clayton; TCP Capital Corp NAV declined 19% from $8.71 to $7.07 per share after the January preliminary range of $7.05 to $7.09, with shares falling 13% on January 26.

Benzinga reported May 15, 2026 that Q1 2026 non-listed BDC redemptions of $6.9B exceeded fundraising of $4.9B, a net outflow of $2.0B -- the first quarter in which redemptions exceeded inflows for this asset class. Q1 gross sales were down 46% from Q4 2025 and 59% from Q1 2025. The Stanger NL BDC Total Return Index posted its first negative quarterly return since Q2 2022.

Q1 2026 redemptions of $6.9 billion exceeded Q1 fundraising of $4.9 billion -- a net outflow of $2.0 billion; Q1 gross sales were down 46% from Q4 2025, marking the first time more capital left non-listed BDCs in a quarter than came in.

WealthManagement reports Q1 2026 BDC earnings show widespread deterioration: FS KKR Capital Corp ($12.3B) reported 9.9% NAV per share decline and launched a $300M buyback; Apollo MFIC ($3B) non-accrual loans reached approximately $167M in the March quarter vs $48.5M a year earlier; TCP Capital Corp ($1.5B, BlackRock) took $35M in Q1 markdowns after a 19% January NAV cut. KKR also launched a $150M convertible preferred investment to stabilize FS KKR.

Apollo MFIC reported non-accrual loans of approximately $167 million in the March quarter versus $48.5 million a year ago; FS KKR Capital Corp Q1 NAV declined 9.9% as KKR launched a $300 million buyback program and $150 million preferred investment to stabilize the fund.

Alternative Credit Investor reports Oaktree Capital warned of accelerating credit performance bifurcation: CCC-rated loan spreads widened over 300 basis points YTD while BB-rated spreads were marginally tighter; executives characterized conditions as the sort of aggressive bifurcation normally seen in a recession. PIK loans marked at 91 cents on the dollar; PIK reliance runs approximately 10% for public BDCs and 4% for perpetual non-traded BDCs.

PIK loans are currently marked at 91 cents on the dollar, indicating all isn't well. CCC-rated loans: spreads widened by over 300 basis points year-to-date -- the sort of aggressive bifurcation normally seen in a recession.

S&P Global assesses that private credit systemic risks remain manageable for systemically important banks and insurers, with exposure described as generally well-managed, but warns that systemic risk potential is rising due to increasing interconnections, more complex leveraged structures, and the rising use of semi-liquid investment vehicles such as non-traded BDCs. S&P estimates the private credit market at $1.8T-$3T against global nonfinancial corporate debt of $100.6T and global bank assets of $190T. The analysis flags that prolonged elevated redemptions could put BDC portfolios -- especially software-sector exposure -- under increasing pressure.

Despite private credit's limited liquidity and transparency, we think exposure remains manageable for systemically important participants, such as banks and insurers. The longer redemptions remain elevated, the more likely portfolios of BDCs -- especially in the software sector -- will be under pressure.