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Private credit, June 2026: a record default, and liquidity closing off

Fitch's broad default rate stays stuck at 6% in May, semi-liquid funds cap redemptions for the second quarter running, and regulators shift from observation to vigilance. The state of US private credit at mid-2026, on primary sources.

14 min read#private credit#gating#hlend#blackstone#bdc#valuation#fed
dated revision: July 14, 2026French originalprimary sourcesno tracker

The headline figure fits on one line: default is at its highest since the indicator existed. The useful information is elsewhere, in the gap between what the figures show and what they leave unsaid.

On 15 June, Fitch published its monthly update on US private credit. The headline stayed the same as the previous month: the default rate holds at its record. This is a non-event, and that is precisely what makes it interesting. A market that many described in December as due to ease in 2026, thanks to rate cuts, instead shows default stuck at its highest, while the exit closes off for the savers who would like their money back. Nothing spectacular, no resounding bankruptcy this month, and yet three counters are rising in parallel. This article takes stock, on primary sources, in the continuity of the journal’s private-credit coverage and of the book Auditing Opacity (Auditer l’Opacité). No catastrophism: a methodical, risk-oriented assessment.

A record default rate, and what it keeps out of sight

Fitch’s benchmark index, the Private Credit Default Rate (PCDR), tracks about 1,200 middle-market borrowers followed by the agency. It stands at 6% over the trailing twelve months. This level, reached over the period ending in April, was first reported by CNBC on 21 May; the 15 June update shows it holding for the period closed at end-May. It is the highest since the indicator’s launch, in August 2024. Its component covering the largest LBO borrowers, the PMR, is higher still, around 9.5% according to Fitch’s 15 June report.

The detail matters more than the figure. The default events recorded by Fitch in May are, for the most part, not outright payment defaults. They are the introduction of payment-in-kind interest (PIK, which stacks debt instead of paying cash) and maturity extensions. In other words, liability management. A borrower who can no longer pay does not necessarily go bankrupt: it renegotiates, swaps cash for PIK, pushes back the maturity. Default becomes an engineering operation, and it leaves the most visible counter to land in one that few people watch. This is what I called, in the deep analysis on private credit and shadow banking, the silent default.

The public leveraged-loan market offers the best illustration of this gap, because there we have two measures side by side. On the Morningstar LSTA index, at 31 May, the payment default rate by issuer comes in at 1.42%, against 1.24% in April. But the dual-track rate, which adds distressed exchanges and liability-management operations, climbs to 3.11%, against 2.84% the previous month. Over twelve months, these liability-management operations represent 54% of total defaults, and they have exceeded classic payment defaults every month since January 2024. The norm has flipped: restructuring out of court has become the default mode.

Default, by what you agree to count in it (May 2026) Payment default, leveraged loans (by issuer) 1.42% Dual-track rate, with liability management (LME) 3.11% Private credit, broad Fitch index (PCDR) 6.0% Private credit, large LBO borrowers (PMR) In cyan, what the visible counter shows. In pink, what appears when you widen the perimeter. Sources: Fitch Ratings (May 2026); Morningstar LSTA / PitchBook LCD (as of 31 May 2026).

This machinery has an identifiable fuel. Lincoln International, which values about a third of US private-credit portfolios, measures the share of PIK loans: it has doubled, from about 5% of the market in early 2022 to 11% at end-2025. More telling still, “bad PIK”, that is, loans initially paid in cash and converted to PIK because the borrower can no longer keep up, has gone from 2% to 6.4% over the same period. PIK is not a default in itself. It is a deferral. But a generalised deferral is a signal about borrowers’ real ability to service their debt in a rate environment that stays high.

The normalisation of interest deferral (PIK) PIK, market share, early 2022 5% PIK, market share, end 2025 11% "Bad PIK" (cash converted to PIK), early 2022 2% "Bad PIK" (cash converted to PIK), end 2025 6.4% Source: Lincoln International (values about a third of US private-credit portfolios).

The exit closes off: semi-liquid funds put to the test

The test of the moment is not about the default figures, which rise slowly, but about the liquidity of the vehicles sold to the general public. Perpetual BDCs and semi-liquid funds promise a quarterly redemption window, generally capped at 5% of net asset value per quarter, while holding illiquid loans that do not sell in a day. When too many investors want out at the same time, the manager activates the cap. That is what is happening, quarter after quarter.

The most closely watched case is HLEND, the $26bn fund BlackRock inherited from the HPS acquisition. In the first quarter, it received redemption requests equal to 9.3% of net asset value, crossed its 5% cap for the first time since inception, and served exits only up to that cap. In the second quarter, requests rose to 13.3%, about 50% more, and the fund again capped at 5%. This is the scenario I described from the first HLEND gating: the liquidity window holds as long as no one uses it en masse.

HLEND is not alone. Blackstone’s credit fund, BCRED, after honouring a record 7.9% of redemptions in the first quarter by injecting $400m of its own capital, ended up capping in turn. Cliffwater saw 14% of requests on its flagship $33bn fund and gated for the second quarter running. Morgan Stanley capped one of its vehicles after requests at 10.9%. And Blue Owl went further in February, simply closing the redemption window of its OBDC II fund. Moody’s cut its outlook on the BDC sector to negative in early April, noting that unlisted perpetual BDCs recorded their very first net outflow in the first quarter.

Redemption requests vs 5% cap (2026) 5% cap Cliffwater (flagship fund) 14% HLEND (BlackRock / HPS), Q2 13.3% Morgan Stanley (North Haven) 10.9% Blackstone (BCRED), Q1 7.9% Redemption requests, not actual redemptions (capped at 5%). Q1 and Q2 2026 mixed. Sources: Reuters, Financial Times, Bloomberg, ZeroHedge (March to June 2026).

A cold clarification is needed here, because it separates signal from noise. What is exploding is redemption requests, not actual redemptions. Real exits remain capped at 5% by construction. The distinction is crucial: a spike in requests is a sentiment signal, the admission that retail holders want their money back. It is not, in itself, proof of a deterioration in the underlying credit. To confuse the two is to read a panic where there is, for now, a nervousness contained by the very design of the funds. No forced asset sale, no downward spiral in valuations has been observed.

Still, the cap protects the fund, not the saver. And it raises the question private credit has avoided for years: that of the freshness of valuations. When 19% of HLEND’s portfolio sits in software, a sector hit by the AI-disruption thesis, is the value carried at net asset value the market value? We are squarely on the terrain of zombie funds and private valuations: as long as you do not sell, the NAV stays smooth, and the displayed stability is partly a function of the absence of transactions.

The systemic channel: banks, under the Fed’s eye

The real systemic-risk question is not the fate of a retail fund, it is the interconnection with banks. US banks had lent close to $300bn to the private-credit sector by mid-2025, according to Moody’s. These are financing lines to funds, and shared borrowers. That is the route through which a problem lodged in the non-bank sector could climb back toward the core of the system.

The Fed’s Supervision and Regulation Report, published in June, is measured, and that is what makes it credible. It describes a solid banking system: more than 99% of banks well capitalised at end-2025, CET1 ratio around 13%, total delinquency rate at 1.6%, below the long-run average of about 3%. On exposures to non-depository financial institutions, it notes that delinquency data remain limited. But it adds, and this is the passage to retain, that several high-profile defaults among these actors have raised concern about private credit, and that some banks are reviewing their collateral-management practices on these lines. In the first quarter, large banks cited a strengthening of their monitoring of private-credit exposures. The tone is not alarmist. It has shifted from observation to vigilance.

The catalysts have names: the failures of First Brands and Tricolor at end-2025 served as revealers. At the international level, the Financial Stability Board published on 6 May a report dedicated to private-credit vulnerabilities, which sizes the market between $1,500bn and $2,000bn at end-2024 and points to the same blind spots: banking interconnections, opacity of valuations, sector concentration in tech, healthcare and services, leverage in layered structures, and liquidity mismatches in funds with a redemption option. Its most accurate sentence fits in few words: private credit has not yet been tested by a prolonged recession. The FSB now proposes a set of monitoring indicators (fund size, borrower leverage, redemption frequency, retail-versus-institutional investor ratio, sector concentration) and opens four work streams. In parallel, in the United States, the FSOC put out for consultation until 14 May a framework for designating systemic non-banks, and the Office of Financial Research published a note on measuring counterparty exposures to private credit via Form PF. This regulatory ramp-up is the direct continuation of the silent contagion I documented. Risk is not measured by defaults alone: it is measured by the authorities’ ability even to see what is happening, and that ability remains, by their own admission, lacking.

The other end of the market: the AI megadeals

You have to hold both ends of the chain, because private credit is not a homogeneous block. While default concentrates on the smallest borrowers, those with EBITDA below $25m, where the Fitch rate exceeds 11%, the top of the market is living its most spectacular moment. On 5 June, Apollo and Blackstone closed a $35bn financing for Anthropic, one of the largest private-credit deals ever assembled. The structure is worth pausing on: a dedicated vehicle buys Google’s TPU chips and leases them to Anthropic, the lease payments servicing the debt, all backed by residual-value guarantees from Broadcom and payment guarantees from Google. The hardware stays off Anthropic’s balance sheet, which is convenient for a company preparing its IPO after a $65bn raise in May, at a $965bn valuation.

It is the same financial-engineering logic seen in the loan refused to SoftBank or around the SpaceX IPO: you back it, you guarantee it, you deconsolidate it. Private credit has thus become, in the same movement, what a BofA strategist called at end-2025 the lowest-quality asset class in the entire leveraged-finance universe, and the vehicle for the most colossal bets on AI infrastructure. The risk is not uniform: it is structured and backed at the very top, raw and unmanaged at the bottom. This bifurcation is the true face of the market in 2026.

The macro backdrop weighs on both ends. The war between the United States, Israel and Iran pushed Treasury yields higher, and since private-credit loans are floating rate, refinancing costs more, which tightens the vise further on fragile borrowers. The rate context that the Fed and the debate over its balance sheet come to complicate is not a neutral backdrop: it is the multiplier of the stress.

The picture as of 17 June

As of 17 June 2026, the picture is coherent and without immediate drama. The broad default rate is at its record and stays there, at 6%. The true rate, the one that includes liability management, is mechanically higher than the visible counter, because the way distress is managed has changed: you defer and exchange rather than default. The test under way is about the liquidity of retail vehicles, where exit requests are rising and the barriers are coming down, but where actual redemptions remain capped and no forced sale has taken place. The banking channel, for its part, is closely watched, benign on the data, but the regulatory tone has turned to vigilance.

The coming quarters will be judged on four elements. The trajectory of redemption requests, to know whether nervousness turns into durable exit. The freshness of valuations, especially on portfolios exposed to software and AI, where the gap between NAV and market would be most likely. Banks’ collateral-management practices, which are the leading indicator of the moment the non-bank becomes a banking problem. And finally, whether or not the stress of small borrowers climbs toward the larger ones. None of this heralds 2008: there is not, in the banking system, the high-speed leverage that produced the domino effect. But the opacity is intact, and it is what prevents answering with certainty the only question that matters: what are these portfolios really worth on the day they have to be sold? As long as the answer stays “we’ll see when we sell”, the record default is only the part of the counter someone chose to switch on.

Sources

This analysis is not investment advice.

// cite this analysis

l0g, “Private credit, June 2026: a record default, and liquidity closing off”, l0g.fr, published July 14, 2026, updated July 14, 2026, https://l0g.fr/en/analysis/private-credit-record-default-liquidity-closing/

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