US private credit portfolios demonstrated notable stabilization in the second quarter of 2026, according to Reuters analysis of regulatory filings from 44 US business development companies (BDCs). The 44 BDCs held investments with a combined fair value of ₹7,840 crore ($92.88 billion) as of June 30, compared with reported cost or amortized cost of ₹7,980 crore ($95.19 billion). This represents an improvement from the end of 2025, when fair value stood at ₹7,900 crore ($95.82 billion) against cost of ₹8,000 crore ($96.54 billion). The aggregate fair-value-to-cost ratio fell to 97.57% in the second quarter, down from 99.25% at the end of December and 97.77% in the first quarter. Despite recent market pressures, private credit default levels remain below long-term averages and consistent with broader trends in public high-yield corporate bonds, suggesting the asset class is experiencing more selective rather than widespread distress.
The private credit market faced significant challenges from software sector exposure, with about 4% of all borrowers having loans marked below 80% of par value, up from roughly 1% annually between 2023 and 2025. According to Reuters analysis, this weakness reflects concerns around borrower fundamentals, tighter financing conditions, near-term debt maturities and uncertainty over the potential impact of artificial intelligence on software businesses. At Ares Capital Corp., two software companies accounted for just over a third of year-to-date net unrealized losses of ₹4,380 crore ($527 million), while including five additional software companies pushed the share above half. Similarly, Blue Owl Capital Corp. reported that its second-quarter decline in net asset value was primarily driven by credit-specific markdowns, compared with the first quarter when about three-quarters of the decline was attributed to broader spread widening. At Golub Capital BDC, losses were concentrated in a small number of junior debt and equity positions, while FS KKR Capital Corp. also reported that a handful of investments accounted for most of its markdowns.
Non-accrual investments, representing loans where borrowers are significantly behind on payments or considered unlikely to pay, increased to 3.4% of portfolio cost at the end of June from 2.5% at the end of 2025. According to Reuters analysis of 10 BDCs with comparable filings, this rise highlights growing pressure in parts of the private-credit market even as aggregate portfolio valuations appeared to stabilize during the second quarter. The developments suggest that while private-credit stress has not been evenly distributed across portfolios, lenders are facing increasing challenges from weaker borrowers, software-sector uncertainty and a more demanding financing environment. The media spotlight has focused on a few high-profile defaults in the broadly syndicated loan market, along with a wave of redemption requests, as signs of potentially widening cracks within private credit.
Despite widespread concerns about private credit's systemic importance, comprehensive analysis reveals the asset class represents a relatively small portion of the overall financial system. According to recent research, private credit is worth approximately $1 trillion actually deployed in the United States, representing about 1% of the $256.8 trillion non-bank financial system and roughly 2% of the $169.4 trillion Other Financial Intermediaries bucket. This context helps explain why private credit's potential impact on the broader financial system remains limited, even as it faces scrutiny from regulators and market participants. The ₹7,840 crore ($92.88 billion) in fair value held by the 44 BDCs represents a manageable portion of the total private credit market, suggesting that while individual defaults could create significant losses for specific funds, the systemic risk remains contained within the private credit sector itself. Private credit has faced greater scrutiny this year as investors raised concerns over opaque valuations, redemption pressure at some non-traded funds, heavy exposure to software and weakening borrower performance.
The private credit market is experiencing unprecedented regulatory attention as authorities seek to understand its true systemic importance. The Federal Reserve is now collecting data on how much banks actually lend to private credit, while the Financial Stability Board (FSB) and the Office of Financial Research (OFR) have published their own reports, which represents a significant shift in regulatory approach. This increased scrutiny comes as the market faces growing concerns about potential systemic risks, particularly given the 70% of private-credit borrowers are owned by private-equity firms during a period of distribution drought. The regulatory focus is particularly important given that about 139,000 individual loans across ten quarters from 2023 to 2025 have been analyzed through BDC filings, providing unprecedented transparency into the loan-level data that underpins the asset class. The regulatory framework is evolving to better understand how private credit operates, with the Bank for International Settlements (BIS) estimating the market at approximately $1.2 trillion, while other estimates range from $2.1-2.3 trillion to $30-40 trillion depending on methodology.
