U.S. Private Credit Defaults Hit Record 6.3% in Third Quarter
Key Facts
Fitch's U.S. private credit default rate reached 6.3% in the 12 months ended in the third quarter of 2026, the highest quarterly level in the series, compared with 6.0% in the second quarter. The figure reflects a sustained increase since the third quarter of 2025, according to the rating agency's report issued on October 29. Fitch recorded 27 defaults in the third quarter, involving 20 new borrowers. That brought the number of unique defaulted borrowers over the 12 months to 91, up from 84 in the period ended in the second quarter. A Fitch official said, "Persistently high real interest rates continue to pressure highly leveraged borrowers' ability to service debt and their refinancing options."
Fitch data show that defaults generally do not take the form of bankruptcy or a permanent cessation of payments, but instead appear as amendments to loan terms. Payment deferrals and payment-in-kind interest accounted for 50% of cases in the 12 months ended in the third quarter. Stressed maturity extensions made up 38%, while uncured payment defaults accounted for 8%. Bankruptcies, liquidations and out-of-court restructurings represented 4% of cases. This distribution puts debt workouts at the center of how to interpret the rate, with deferrals and extensions making up the largest share of recorded cases.
Default rates varied sharply across sectors. Industrials and manufacturing, and consumer products and services, posted the highest rate among the largest sectors Fitch tracks, at 9.7% each in the third quarter. In healthcare, the number of unique defaulted borrowers reached 16 over the 12 months, the highest count among sectors; but the default rate fell to 8.7% from 9.4% in the second quarter. At the other end of the range, technology software recorded the lowest rate among major sectors, at 0.6%, down from 1.2%. The figures highlight divergent default trends even as the overall rate climbed to a record.
The rise in the overall rate was driven by Fitch's model-based Credit Opinions portfolio, where the default rate climbed to a record 5.7% in the third quarter from 4.9% in the second quarter. By contrast, the rate in the portfolio of closely monitored ratings fell to 8.0% from 9.4%. This comes amid growth in the U.S. private credit market in recent years. The Federal Reserve estimated that private credit loans accounted for about 6% of total nonfinancial corporate debt in the fourth quarter of 2025, up from about 1% in 2012. Assets in private credit vehicles also exceeded $2.6 trillion in the fourth quarter of 2025, while outstanding loans to U.S. companies totaled about $1.5 trillion.
On liquidity, the Federal Reserve's Financial Stability Report said redemption requests at some semiliquid private credit vehicles had increased, and most managers had imposed redemption caps. Outflows moderately exceeded inflows in the first quarter of 2026, while redemption requests remained manageable. At perpetual business development company funds, accepted redemption requests exceeded inflows in the first quarter for the first time since these vehicles were established. In the broader economy, U.S. real gross domestic product grew at an annual rate of 3.4% in the third quarter, compared with 2.2% in the second quarter. The Bureau of Economic Analysis attributed growth to increases in investment, consumer spending and government spending, partly offset by a decline in exports.
September data showed the personal consumption expenditures price index rose 0.5% month over month and 3.6% year over year. The core index, which excludes food and energy, increased 0.3% monthly and 3.1% annually, after rising 3.0% in August. The Institute for Supply Management's manufacturing report is released on the first business day of the month, with the next release scheduled for November 2 and no reliable numerical forecast for the index. The Bureau of Economic Analysis is scheduled to issue its next GDP update on November 25. It will also release October personal income and spending data that day at 8:30 a.m. Eastern Time.