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Jefferies has flagged rising risks in the US private credit market, with loan defaults at some major private credit funds increasing to their highest levels since at least 2021, even as concerns mount over the sector's exposure to private equity and the software industry.
According to Jefferies' latest GREED & fear report, non-accrual rates at major private credit funds have risen sharply. Non-accrual rates at Ares Capital, Blue Owl, Golub Capital and Blackstone Secured Lending Fund increased to 2.4 per cent, 2.8 per cent, 2.9 per cent and 3.6 per cent, respectively, in the second quarter of 2026, from 1.5 per cent, 1.4 per cent, 1.2 per cent and 0.3 per cent in the first quarter of 2025. "Loan defaults at some of the major private credit funds have started to rise, though from low levels, and are now at their highest level since at least 2021," Jefferies said. The report highlighted the close link between private credit and leveraged buyouts, noting that around 70 per cent of private credit lending is extended to private equity. "The key macro issue regarding private credit...is that about 70% of its lending is extended to private equity," the report said. Jefferies also pointed to growing risks for private credit from the artificial intelligence-driven disruption of the software industry. It said an estimated 20-25 per cent of the private credit market is exposed to software, while direct lending to software-as-a-service companies had risen to USD 538 billion, or 19 per cent of total direct loans, by end-2025. The report said the "private equity industry would be facing a problem anyway" because it expanded during the era of zero interest rates and had not hedged against the subsequent rise in short-term interest rates. Jefferies noted that global private debt assets under management surged from USD 0.9 trillion at the end of 2020 to around USD 2.1 trillion by the end of 2025, while the private credit asset class is now facing the risk of outflows. (ANI)
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